Pensions for Teachers: Who Knows What Tomorrow May Bring? By Steven M. Kimball and Herbert G. Heneman III November 22, 2002 CPRE National Conference on Teacher Compensation and Evaluation

Pensions for Teachers: Who Knows What Tomorrow May Bring?  Why think about teacher pensions? Large, but overlooked part of total compensation Recent market performance, concerns about teacher shortages, pension portability, etc.  Why did CPRE study teacher pensions? Natural extension of CPRE teacher compensation research Carnegie Corporation of New York

What approach did we take?  Legal analysis?  Budget implications?  Plan governance and design?  All important issues, but much work already in those areas…

CPRE’s Approach to Pension Study…  Pensions from a behavioral perspective, largely from teachers’ point of view  What impact might we expect various pension features to have on teacher behaviors?

Presentation Overview  Pension plan types and key characteristics  Emerging issues and proposals for change  Challenges and issues ahead  Respondent commentary  General discussion

Plan Types and Characteristics  Defined Benefit Plans Features: benefit guarantee, maximum benefits, financing, purchase of credit, normal and early retirement, inflation protection and tax treatment, other benefits Private – public sector comparisons

Plan Types, cont.  Defined Contribution Plans Features Comparisons to DB plans Variations: TSA 403(b), Section 457, hybrids  Vesting rights  Portability

Emerging Issues and Proposals for Change  Moving toward a national market  Allowing greater pension choices  Increasing pension payouts  Improving equity, and  Impact on the attraction and retention

Emerging Issues, cont.  National Market for Teachers Defined contribution arrangements Enhancement of service credit Benefit reciprocity Improved vesting

Emerging Issues, cont. u Employee Investment Choice Opt out of pension plan coverage Switch to DC plan Hybrid plans Investment choice within DB plan No penalty for re-entry or post-retirement teaching

Emerging Issues, cont.  Higher Payout Increase formula under DB plan Liberal purchase of service credit Inflation protection  Improved Equity

Emerging Issues, cont.  Attraction and Retention Attraction data Retention data Conclusions Selective shortages Selective hiring difficulties

Emerging Issues, cont. u Pensions and Motivation Theory Effort - getting a job(attraction); remaining with employer (retention) Teacher knowledge about pensions Desirability of pension coverage (present) and payout (future)

Pensions and Motivation Theory, cont. Desirability of multiple other job attributions Probabilities of attributes occurring Tradeoffs between pensions and other attributes Individual differences among teachers

Challenges and Issues Ahead  Teacher knowledge  Teacher preferences for pensions and other outcomes  Links to attraction and retention Current research Enablers  Employer Issues  Teacher Associations