When Teachers Choose Pension Plans: The Florida Story

Matthew M. Chingos (PDF):

Why such fervor? Such anguish? In an era of budgetary belt tightening, and in the wake of the 2008 market crash, state and local policymakers are finally awakening to the impact of teacher-pension costs on their bottom lines. Recent reports demonstrate that such pension programs across the United States are burdened by almost $390 billion in unfunded liabilities. Yet most states and municipalities have been taking the road of least resistance, tinkering around the edges rather than tackling systemic (but painful) pension reform.
Many have suggested that one solution to the pension crisis is to offer teachers the option of a 401(k)-style plan (also known as a “defined contribution” or DC plan) in lieu of a traditional pension (known as “defined benefit” or DB plans). We see much merit in that approach, but we also wondered whether this alternative would appeal to teachers. Would certain types of teachers–new, veteran, more educated, etc.–naturally gravitate to one type of retirement plan or the other? Might it be the case that more (or less) effective teachers or teachers in harder-to-staff subjects would prefer DC plans due to their portability or other advantages (real or perceived)? If so, this would suggest that offering alternatives to traditional DB pensions could be a useful tool for improving teacher quality and/or supply. If the opposite is true, this could raise concerns about moving away from traditional DB systems.
To investigate these possibilities, we turned to Professor Martin West of the Harvard Graduate School of Education, who is also an executive editor of Education Next and deputy director of Harvard’s Program on Education Policy and Governance (PEPG). West tapped his colleague Matthew Chingos, now a fellow at the Brookings Institution’s Brown Center on Education Policy. This dynamic duo advised us that Florida was uniquely positioned to address our questions, it being one of just two states that allow teachers to choose between DB and DC plans, and the only place, at least for now, that can link information about teachers’ pension-plan decisions with administrative data on those same teachers and their students (including value-added achievement data).