Better Pay, Fairer Pensions II: Modeling Preferences Between Defined-Benefit Teacher Compensation Plans
by Josh McGee, Marcus A. Winters
June 25, 2014
Information from pension plans in the ten largest U.S. school districts indicates that, under a variety of conditions, teachers would prefer less backloaded retirement benefits. Under reasonable assumed levels of risk aversion, this preference is quite large. This has major implications for policymakers, who must now acknowledge that many current pension plans are undesirable from the perspective of teachers. Some plans are so heavily backloaded - offering entering teachers such little probability of earning meaningful retirement benefits - that risk-averse teachers would be willing to accept relatively small certain amounts at the time of hire, rather than participate in the pension plan.