The research, by Robert M. Costrell of the University of Arkansas and Michael Podgursky of the University of Missouri-Columbia, found that teacher pensions typically have sharp peaks and valleys in earnings levels caused by changes in the annual annuity payment as determined by a benefit formula and the number of years a teacher can expect to collect it.
According to the researchers, that arrangement encourages educators to continue working until they can reap the benefits of sharp pension spikes and then pushes them to retire early – often in their early to mid-50s. Those who want to leave the profession prior to the spike could earn several hundred thousand dollars more by staying put a few more years.
These dynamics are taking place as many school systems grapple with teacher shortages created by the requirements of the federal No Child Left Behind education standards legislation, the study said.
According to Costrell and Podgursky, the pension structure has the effect of locking younger teachers into “putting in time” to receive a large spike in pension wealth even if they want to leave or are better suited for another job.
In Arkansas, one of the five states in their study, Costrell and Podgursky noticed a particularly sharp spike occurs at age 50 for a teacher who started at age 25 when that teacher’s pension wealth increases by almost five times his or her salary. Pension wealth accrual drops off precipitously the following year and by age 54 has turned negative.
Similarly, teachers in Missouri, California, and Massachusetts experience pension spikes in their early to mid-50s, followed by much slower growth and ultimately shrinking pension wealth, the researchers found.
Costrell and Podgursky point to benefit enhancements enacted by the legislatures in California and Massachusetts that have created earnings spikes. In Arkansas, benefit enhancements over the years have shifted the spike to earlier retirement. Likewise, Ohio’s multispiked system reflects its history of legislative benefit enhancements: the state once had a single pension spike for teachers at age 60; it now has three spikes, beginning at age 50.
The study also found many teacher pension systems have large unfunded liabilities. In 2006, California’s teacher pension system had an unfunded liability of $19.6 billion; in New Jersey, $10 billion; in Missouri, $5.2 billion; and in Ohio $19.4 billion.
The study is here .