Teacher Pension Plan Incentives, Retirement Decisions, and Workforce Quality

Abstract

We analyze late-career teacher turnover induced by pension incentives. Using longitudinal data on Tennessee teachers, we find high quality teachers less likely to retire conditional on age and experience. We estimate a structural model for retirement that allows high and lower quality teachers to have different work-retirement preferences and use it to simulate the effect of alternative pension plan designs. Enhancements to traditional plans accelerate teacher retirement and reduce average teacher quality, whereas defined contribution (DC) plans have the opposite effect. Under the current plan, targeted retention bonuses would delay retirement of high quality teachers at relatively modest cost.