Guest blog post by Cory Koedel

Teacher pensions account for a significant percentage of teacher compensation but are often ignored in conversations about improving teacher quality. In a recent study, my colleagues and I examine how the incentives for teachers to remain in teaching or leave the profession created by teacher pensions impact workforce quality. We find no evidence to suggest that the pension incentive structure raises teacher quality.

Public school teachers, like most public-sector workers in the United States, are nearly universally enrolled in defined-benefit (DB) pension plans, in which the employer promises a set monthly payment in retirement that depends on the retiree's employment and earnings history. In contrast, most private sector employees have moved toward defined contribution (DC) plans, such as 401(k)s. A key feature that distinguishes DB pension plans from defined-contribution (DC) plans is that the rate of wealth accrual is heavily backloaded; in other words, the value of the defined benefit grows slowly in an employee's initial years of work, and much more rapidly later on. The backloading creates strong financial incentives for teachers to remain in teaching up to a certain point in their careers ("pull" incentives), then similarly strong incentives for them to retire shortly thereafter ("push" incentives).

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