Teacher Pensions and Labor Market Behavior: A Descriptive Analysis

1. Teacher Pensions and Labor Market Behavior: A Descriptive Analysis Michael Podgursky, University of Missouri - Columbia Mark Ehlert, University of Missouri- Columbia Robert Costrell, University of Arkansas – Fayetteville Center for Analysis of Longitudinal Data in Education Research (CALDER) CALDER Data Conference Washington, DC October 4, 2007.

2. Why study teacher retirements? • Teacher retirements generate vacancies • Teacher retirements generate costs • Teacher pensions • Retiree health insurance • Incentives in retirement systems may have significant effects on labor supply and mobility • Pension system incentives are large • Retirement systems can affect the quantity and quality of the teaching workforce

3. Research literature • Large labor economics literature on pensions and retirements • Very small literature on teachers • Furgeson, Strauss, Vogt (2006), PA teachers • Brown (2006), CA teachers • Harris and Adams(2007), CPS • Absence of basic data • Type of benefits and costs (esp. retiree HI) • Parameters of systems (NEA, NASRA, Loeb and Miller, 2006) • Incentive structure of teacher pensions • Teacher labor market data • SASS TFS • Longitudinal state data (SEA records linked to pension data)

4. Source: Harris and Adams (2007)

5. Teacher Pensions: Some Stylized Facts • Mostly state-wide systems • Roughly 70 percent of teachers are in Social Security. Generally state decision. • Nearly all (vested) teachers are in Defined Benefit plans. DC and CB options limited • Mean retirement age is well below Social Security and Medicare ages • 58 years (retired and stopped teaching, SASS TFS)

6. Incentives in Teacher Pension Systems • In public sector DB pension systems accrual of pension wealth is highly non-linear and back-loaded • State systems generally have sharp “spikes” in accrual rates • Pull teachers to spike • Push out after • Not inherent in DB pension systems. • “cash balance” (IBM and other firms) • Can smooth spikes

7. Typical DB teacher pension Annual Pension = S x FAS x r(S,A) S = service years FAS = final average salary r(S,A) = replacement factor

8. Lots of moving parts…

9. Compute pension wealth at each year of work life • Compute growth of pension wealth from an additional year of work • Representative teacher • Enters at 25, continuous spell of work • Standard assumptions concerning PV of pension wealth. (see Costrell and Podgursky (2007) )

10. Increment to PV of Pension Wealth from Working an Additional Year: Missouri

11. Source: Costrell and Podgursky (2007)

12. Source: Costrell and Podgursky (2007)

13. Source: Costrell and Podgursky (2007)

15. Ohio

17. Missouri Longitudinal Teacher Data File (excluding KC and STL districts) 2005-06 1990-91 A + E ≥ 45 Full-Time Teachers N= 31,060 21,240 Retirements

18. Distribution of Age + Experience 80

19. Distribution of Age

20. Distribution of Experience 29

21. Cumulative Distribution of Retirement Age: Male vs Female Median = 56 males, 57 females

22. 100.000 90.000 80.000 70.000 60.000 Cumulative Percent RURAL 50.000 URBAN 40.000 30.000 20.000 10.000 0.000 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 or older 50 or younger Age Group Cumulative Distribution of Retirement Age: Rural vs Urban

23. Cumulative Distribution of Retirement Age: White vs Black

24. Cumulative Distribution of Retirement Age: High and Low Achieving Schools

25. Cumulative Distribution of Retirement Age: Elementary vs Secondary

26. Increment to PV of Pension Wealth from Working an Additional Year: Missouri r = 2.5% S ≤ 30 r = 2.55% S ≥ 31 Changed in July 2001

27. Distribution of Years of Experience at Retirement Before and After 2001 Change In Replacement Rate

29. Distribution of ln (salary)

30. Distribution of ln (salary) Distribution of ln (pension wealth)

31. “Retired” • Retired (Collecting teacher pension) • Retired and not teaching • “Double Dipping” • DROP • withdrawal • change pension systems • part time teaching

32. Cumulative Distribution of Teacher Retirement Ages: Teacher Follow Up Surveys, Schools and Staffing Surveys, 2001 and 2005 “Retired” = collecting pension and not teaching 58

33. 100.0 MO Age - 90.0 Retired 80.0 MO Age - Retired & Quit Working 70.0 TFS 2001 60.0 Cumulative Percent 50.0 40.0 30.0 20.0 10.0 0.0 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 or older Age 50 or younger Source: Schools and Staffing Surveys: 2001 & 2005 Teacher Follow Up Retirement Age in Missouri and the US: Missouri and SASS Teacher Follow Up Survey 2001.

34. Labor Market Experience of Teachers Who Retired in 2000: Percent of Teachers Working Full and Part-Time in Missouri Public Schools in Subsequent Years

35. Structure of 2004-05 SASS Teacher Follow Up Survey 5.3% (4.9% of total pop.) 91.6% Current Teacher Survey Collecting Teacher Pension? SASS Teacher Follow-Up Survey 2003-04 8.4% Former Teacher Survey

36. Lesson Total Compensation = Current + Deferred Compensation

37. Papers at www.caldercenter.org • Slides at http://economics.missouri.edu/ • Ohio report www.edexcellence.net