For K-12 teachers and government employees, defined benefit pension plans have long been the cornerstone of retirement security. Two studies by a group of authors provide compelling evidence that these defined benefit pensions no longer fit the needs of the modern workforce and that a more comprehensive and flexible approach to teacher retirement is needed.
In “Teachers’ Willingness to Pay for Retirement Benefits: A National Stated Preferences Experiment” by Dillon Fuchsman, Josh B. McGee, and Gema Zamarro, the authors explore teachers’ retirement benefit preferences. The study published in the Feb. 2023 edition of Economics of Education Review uses a choice-based conjoint analysis. This statistical technique is used to understand how individuals make complex choices by breaking down the decision into a multistep process. By analyzing the choices made by individuals in response to different options, researchers can estimate the relative importance of each attribute and how it affects decision-making. The study polled a nationally representative sample of over 2,000 teachers gathered through an online panel. Participants were presented with hypothetical scenarios that involved varying levels of current compensation and future retirement benefits, which they were asked to rank according to their preferences.
The results reveal a wide range of preferences:
We find that, on average, early-career teachers are indifferent between traditional pension and alternative retirement plan designs. In addition, we find that teachers have stronger preferences around their expected salary replacement in retirement and retirement age than plan type. We also find that teachers’ willingness to pay for traditional pension plans is less than their willingness to pay for many other compensation elements, including salary growth, health insurance coverage, and Social Security enrollment.
This variety highlights the need for a more flexible retirement system that caters to individual needs and circumstances rather than a one-size-fits-all approach embodied by DB pension plans.
A 2021 University of Arkansas study by the same authors, “Teachers’ Knowledge About and Preparedness for Retirement: Results From A Nationally Representative Teacher Survey,” investigated how prepared public teachers are for retirement and tested how familiar they are with their retirement plans. In this case, the authors used a cross-sectional survey of more than 1,000 teachers designed to capture information on demographics, retirement savings behavior, and knowledge about pension systems.
The findings from this study should cause policymakers and scholars to reexamine their assumptions about teachers’ pensions. The study found that a significant proportion of teachers—more than two out of five respondents— could not correctly identify their retirement plans based on a description of how benefits are determined. Moreover, less than 20% of teachers knew their retirement ages, although about 75% could identify retirement age eligibility within five years. Only 40% of respondents correctly identified whether they and their employers contribute to Social Security on their behalf.
However, 86.4% were correct in determining whether someone was contributing to their pension on their behalf. Regarding the duration of receiving their benefits, most respondents, 68%, were able to identify how long they will be able to collect benefits, suggesting that benefit duration is something that many teachers value.
Furthermore, the survey results reveal some potential issues in perceived retirement preparedness among teachers. When it comes to early career teachers, only 47% have tried to develop such a plan. Most (71%) of teachers indicate that they have some other money set aside, 27% have no additional money set aside, and the remaining 2% do not know. These findings highlight the importance of providing teachers with comprehensive financial education and support to help them make informed decisions about their financial futures.
Both surveys suggest that retirement specifics are not at the forefront of most teachers’ thoughts, meaning retirement benefits likely aren’t a strong draw for the recruitment and retention of teachers. Most academic studies have assumed that teachers are fully informed about their retirement benefits and that knowledge informs their employment decisions. But these surveys cast doubt on that assumption. This is particularly important in light of many scholarly works that find only marginal impacts of public pensions on recruitment and retention. Given the uncertainty about teachers’ accurate evaluation of their retirement plans, any definitive conclusions based on even the most quantitatively and theoretically advanced studies should be met with some skepticism.
The two Fuchsman, Mcgee, and Zamarro studies underscore the need for more research and significant reform to retirement plans for teachers. The diverse preferences of teachers call for a more flexible and comprehensive approach to retirement. Policymakers should consider offering a mix of retirement options, focusing on plan types that fit the mobile characteristics of the modern workforce. The findings suggest policymakers should reexamine whether their pension plans are drawing and keeping teachers with retirement benefits. Policymakers need to recalibrate their approach to make retirement security, not recruitment, the chief consideration when developing and evaluating the retirement benefits they offer teachers.
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