How Much Are Public School Teachers Willing to Pay For Their Retirement Benefits?
In this working paper, Fitzpatrick finds evidence that public sectors workers undervalue their pension benefits relative to the cost of providing them. In response to a 1998 surplus in pension fund assets, Illinois allowed late-career public school teachers to buy upgraded, more generous retirement benefits. However, on average, teachers were willing to pay just 20 cents of their current compensation for a dollar of future retirement benefits; hence, these teachers preferred current wages over pension wealth by a factor of five-to-one.
A large portion of public sector lifetime income comes in the form of deferred compensionation. Given public employees undervaluing benefits, however, it seems that public employees may actually prefer a higher proportion of their compensation upfront.