Distribution of Benefits in Teacher Retirement Systems and Their Implications for Mobility. Conference Paper 2009-04

While it is generally understood that defined benefit pension systems concentrate benefits on career teachers, and impose costs on mobile teachers, there has been very little analysis of the magnitude of these features and patterns of variation between states. The authors develop a measure of implicit redistribution of pension wealth among teachers of varying ages of separation. Compared to a neutral system, they find that about half of an entering cohort's net pension wealth is redistributed to teachers who separate in their fifties from those who separate earlier, and they also identify some variation across six representative state systems. This implies large costs for mobility. The authors estimate that teachers who split a thirty-year career between two pension plans often lose over half their net pension wealth compared to teachers who complete a career in a single system. Plan options that permit purchases of service years mitigate little or none of these losses. It is difficult to explain these patterns of costs and benefits on efficiency grounds. More likely explanations might include the relative influence of senior versus junior educators in interest group politics and the coordination problem between states, regarding mobility versus retention. (Contains 16 figures, 7 tables, and 40 footnotes.)