Efficiency and Equity in the Time Pattern of Teacher Pension Benefits: An Analysis of Four State Systems. Working Paper 2007-01

Defined Benefit pension plans often generate odd time patterns of benefits. One typical pattern exhibits low accrual in early years, accelerating in mid-late years, followed by dramatic decline, or even negative returns in years that are relatively young for retirement. We consider four states for specific analysis: Arkansas, Missouri, California and Massachusetts. There are interesting variations among these states' formulas, which affect the incentive to retire early. We identify key factors in the defined benefit formulas that drive such patterns and likely consequences for employee behavior. We examine the efficiency and equity consequences of these systems and lessons that might be drawn for pension reform. (Contains 1 table, 8 figures and 18 footnotes.) [A previous version of this paper was presented at the Annual Meeting of the American Education Finance Association in Baltimore, Maryland.]