Retaining a High-Quality Teaching Workforce: The Effects of Pension Design

by Lynn Patten Priestley Mahler, University of Virginia

Over the next decade, more than half of all public school teachers will become eligible for retirement (National Commission on Teaching and America’s Future, 2009). A mass exodus of these experienced persons could have disastrous consequences for student learning and further exacerbate the disproportionate demand for high-quality teachers in disadvantaged schools. This potential crisis is driven by the aging Baby Boom Generation that makes up a large portion of the teaching workforce, but, it is amplified by the public pension systems that provide incentives for teachers as young as 50 years old to retire. My research concerns how these incentives affect the retention of effective teachers who have large impacts on student learning, and the retention of teachers in hard-to-staff schools.

Most public school teachers are eligible for a defined-benefit pension plan that creates abrupt changes in retirement incentives as teachers age. Using Coile and Gruber’s (2007) ‘peak value’ approach, I leverage the plausibly exogenous variation in pension wealth driven by pension rules to identify the causal effect of retirement incentives on exit behavior. I use a detailed, 15-year panel of data on all North Carolina public school teachers to study how individuals with different characteristics respond to nonlinear accrual of pension wealth. Of particular importance are the effects on retention decisions of teachers with relatively large or small impacts on student achievement, as indicated by ‘value-added’ measures. I also explore whether teachers at hard-to-staff schools are more sensitive to pension incentives, potentially making these schools even more difficult to administer. My results concerning the heterogeneous retirement behavior of teachers may apply to the retirement decisions of other types of workers, where worker quality and working conditions are difficult to measure.

Teacher retirement funds fall short of their liabilities by an estimated $1 trillion, causing many states to consider cost-saving changes, including restructuring their public pension plans (Pew Center on the States, 2010). My research helps to inform the ongoing policy debate surrounding these reforms by uncovering potential unintended consequences of the proposed changes. For example, if effective teachers are more likely to continue teaching when pension wealth is accruing rapidly, then these high-quality teachers may exit early if pension accruals are leveled out, hurting students who could have benefited from their expertise. This study is a necessary first step toward implementing a retirement system that encourages the retention of high-quality teachers in all types of schools.

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