Teacher Pension Incentives and Labor Market Behavior: Evidence from Missouri Administrative Teacher Data. Conference Paper 2009-11

Policy discussions about teacher quality and teacher "shortages" often focus on recruitment and retention of young teachers. However, attention has begun to focus on the incentive effects of teacher retirement benefit systems, particularly given their rising costs and the large unfunded liabilities. In this paper we analyze accrual of pension wealth for teachers in a representative defined benefit teacher pension system. Missouri substantially enhanced retirement benefits during the 1990's in response to a booming stock market. We estimate the current costs of those enhancements, and evidence of their effects on teacher retention and retirement. We construct forward-looking measures of teacher pension wealth and show that the actual distribution of teacher retirements can be approximated by simple models which assume that teachers retire when pension wealth is maximized. While retirement age is rising in other sectors of the economy, these pension enhancements appear to have lowered the average experience and age of retiring public school teachers in Missouri. Calculation of Current and Maximum Pension Wealth is appended. (Contains 2 tables, 11 figures, and 10 footnotes.)