How do retirement plans affect teacher recruitment and retention? What happens to the teacher workforce when states change their retirement plans?
Of these two questions, it’s much easier to study how pensions affect retention, because retention is a measure of people who are already in the profession. For early-career teachers, pensions don’t seem to have much effect at all. When we looked at state assumptions on worker turnover, we discovered that no state assumes teachers will change their behavior in order to qualify for a pension benefit. That is, new teachers don’t stick around just for a pension. There is evidence of a “pull” effect as teachers approach normal retirement age, the age at which they can begin collecting an unreduced pension benefit. Veteran teachers are aware of the pension system and will stick it out a few more years to hit their milestone. But this effect seems to occur quite late in a teacher’s career, and few teachers make it to that point.
After teachers reach normal retirement age, there’s a large "push" effect that nudges them out of the classroom and into retirement. All told, pensions seem to have a mild retention effect, but mainly on late-career veterans, and they also push veteran teachers out of the classroom at relatively young ages. On net, switching to a different type of retirement plan is likely to have only a limited effect on teacher retention.
But what about teacher recruitment? Do retirement plans play a role in getting potential educators into the classroom in the first place?
Pension plan effects on recruitment are harder to pin down, because those questions are asking about the behavior of potential teachers. A recent study from Matthew Kraft, Eric Brunner, Shaun Dougherty, and David Schwegman on teacher accountability reforms and the supply of new teachers shines at least a partial light on this issue. The paper is primarily focused on whether teacher tenure and teacher evaluation reforms affected the supply of new teachers, but one of the variables Kraft et al included was the employee contribution rate into state pension plans. The authors did not look at other pension reforms going on at the same time, but employee contribution rates should be one of the most salient. And yet they did not find employee contribution rates had an effect on the supply of new teachers.
This finding offers at least one piece of evidence that new teachers don't pay that much attention to retirement issues. Based on our read of the broader literature on retirement and worker retention (see discussion here, for example), it’s clear that workers want to know they have some retirement plan, but the specifics of that plan are not likely to drive their decisions as much as salary, location, or other intangible factors might.
There are two more issues that are specific to the teaching profession. One is that the vast majority of teachers are enrolled in statewide retirement plans. That means school districts aren’t competing for teaching talent with other districts in their state on the basis of retirement benefits. If there’s a change in the retirement plan, it affects the entire state. For a change in retirement plan to affect the supply of new teachers, those would-be teachers would have to cross state lines or give up on their chosen profession. Private schools are also not competitors here, because private school retirement benefits tend to be far less generous.
Two, the typical teacher pension plan is enormously complicated. Even if teachers valued the structure of a defined benefit pension plan, they would have to be exceptionally well-versed in financial modeling to factor in all the variables that determine someone’s ultimate benefit. Pension plans pay actuaries to do this, and there’s a whole body of research trying to explain how workers accumulate benefits under pensions plans. Unlike in a 401(k) plan where a worker can easily understand and compare employer contribution rates, the pension plans offered to most public school teachers are much harder to quantify and evaluate.
The Kraft et al paper is just one piece of evidence, but the findings suggest that pension reform need not harm the supply of incoming teachers. If anything, updating teachers’ retirement options could even free up resources to raise base salaries, which may ultimately affect the teacher workforce more than retirement benefits ever can.
The fact that pensions aren’t an effective tool to shape the teacher workforce doesn’t mean states should eliminate all retirement benefits. On the contrary, recognizing that fact frees up policymakers to focus on the question of whether all workers are on a path to a secure retirement. It may be interesting to think about whether pension plans affect teacher behavior, but ultimately retirement plans should be designed for workers, not their employers.