Which plan to choose? The determinants of pension system choice for public school teachers

This paper examines a natural experiment in which Washington State teachers were offered the opportunity to choose between enrolling in a traditional defined benefit (DB) plan and a hybrid plan with DB and defined contribution (DC) components. We find plan preference is weakly related to estimates o...

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Bibliographic Details
Published in:Journal of pension economics & finance 2016-01, Vol.15 (1), p.30-54
Main Authors: GOLDHABER, DAN, GROUT, CYRUS
Format: Article
Language:English
Subjects:
Defined benefit plans
Economic reform
Employee benefits
Employees
Enrollments
Pension plans
Productivity
Public sector
Reforms
Studies
Teachers
Transfer payments
Wages & salaries
Workforce
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Summary:This paper examines a natural experiment in which Washington State teachers were offered the opportunity to choose between enrolling in a traditional defined benefit (DB) plan and a hybrid plan with DB and defined contribution (DC) components. We find plan preference is weakly related to estimates of the relative financial benefits of being in either the DB or hybrid system and strongly related to teacher age. Importantly, we also find that the majority of teachers prefer the hybrid plan, and that teachers opting into the hybrid plan tend to be more effective based on student output measures of teacher productivity. These results suggest that policy shifts toward pension systems that include DC options do not necessarily make teaching a less desirable profession, particularly for the most productive employees.
ISSN:1474-7472
1475-3022
DOI:10.1017/S1474747214000353