Rewriting the Rules of Retirement: How Teachers Respond When Schools Opt Out of Pension Systems

• In Event: Hilton Roundtable Session 17
  In Roundtable Session: The Effects of Teacher Policy Reforms on Collective Bargaining Agreements and Teacher Employment

Abstract

Teacher pensions have long been considered an important part of teacher compensation packages. Teachers typically accept lower average salaries, compared to other industries, in return for more generous, guaranteed retirement benefits. Individual teachers benefit from a stable financial payoff to a career in teaching. In theory, society also benefits through stability in the teacher workforce that is generated by attracting and retaining teachers who intend to pursue a long-term career in public education. However, with a growing population of retired teachers, many states face a financial challenge of sustaining their public pension systems (Backes et al. 2016). Some policymakers and economists question the long-term sustainability of teacher pensions, arguing that defined contribution plans, where employees take on more financial risk, are a more viable solution. However, a shift in retirement benefits might profoundly change the composition, stability, and performance of the teacher workforce. Theory predicts ambiguous effects as pensions simultaneously encourage some less-effective teachers to remain in the profession, while also pushing some more-effective teachers into early retirement. Empirical evidence suggests that pension rules influence teacher behavior (e.g., Fitzpatrick & Lovenheim, 2014; Ni & Podgursky, 2015; Koedel & Podgursky, 2014), but little is known about the potential effects of a more systemic change in teacher retirement benefits.

The public school system in New Orleans, Louisiana provides a unique opportunity to study this issue. Since 2005, New Orleans’ public school system transitioned into the nation’s only majority-charter district in a reform-driven system of school choice and high-stakes accountability. A theoretical advantage of charter schools is their freedom to hire teachers outside of district teacher contracts, with flexibility in compensation (Chubb & Moe, 2011; Lincove, Barrett, & Strunk, 2016). Louisiana laws extends this autonomy to teacher retirement benefits, and the majority of New Orleans charter schools are given option to opt out of the state-managed Teachers’ Retirement System of Louisiana (TRSL). Prior to school reform, all teaching positions in New Orleans offered TRSL. Currently 48% of positions offer TRSL, and the rest rely on alternative defined contribution plans.

Schools have a clear financial incentive to opt out, as TRSL requires a large school contribution of over 26 percent of teacher salaries. However, opting out might also significantly alter a school’s ability to attract and retain highly-effective teachers – particularly mid-career teachers who are both highly experienced and deeply-vested in the pension system. This paper examines the effect of the transition away from TRSL participation on the New Orleans teacher workforce. Empirically, since the decision is made by schools and exogenous to teachers, we estimate the effects of pension exit by comparing the outcomes of teachers who experienced a shift in pension plans to those teachers who remained in TRSL using a difference-in differences framework. Our outcomes of interest include mobility and exit, teacher absences, and teacher performance. Preliminary results suggest that teachers whose schools shifted away from TRSL had greater propensities to exit their schools and teaching in New Orleans. However, we find little evidence of impacts on teacher effort.

Authors

• Nathan Barrett, Tulane University

• Jane Arnold Lincove, University of Maryland - Baltimore County