Early Retirement Trade-Offs



By 05/22/2014

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Thousands of teachers and other public sector workers have been retiring in recent years, fueled in part by changes to their pensions. A January Governing magazine story found increased retirement rates in Georgia, Illinois, New Jersey, Ohio, Oregon and Wisconsin. Although this is often portrayed as a bad thing– the pension plan is pushing out scores of experienced workers!—new research from Maria D. Fitzpatrick and Michael F. Lovenheim in Education Next suggests we may not have reason to worry.

Faced with a budget crisis in the early 1990s, Illinois offered teachers a generous early retirement package. Large numbers of older, more experienced teachers took the offer, leading to a threefold increase in retirement rates. Over a two-year period, 10 percent of the total teaching workforce in Illinois retired.

None of the recent stories of mass retirements have been nearly as large as the 10 percent in Illinois, but what happened in Illinois can give us comfort that the retirements of today may not be as bad as predicted.

After the early retirement incentive program, Illinois had a dramatic influx of new teachers and a rapid decline in average teacher experience. The median retiring teacher had 27 years of experience and was replaced by a teacher with less than 3 years of experience. Across the state, average teacher experience declined and the number of new teachers increased substantially. All else equal, and since we know that teacher effectiveness rises with experience, we would have expected student achievement to go down.

But that’s not what happened. Instead, math and English test scores either stayed the same or went up. Importantly, those results held true for low-income, minority, and low-achieving students as well. There may be multiple reasons for this, but the massive retirements didn’t hurt student learning.

This study relied on school-wide test results, and we need more work on early retirement programs to replicate this finding, especially using data on individual teachers. Still, this is an important research finding and one that provides some insight into how the looming retirement of the Baby Boom generation may affect students. Along with other academic studies as well as surveys of teachers, it suggests there may be some experienced teachers hanging onto their jobs at the back end of their career as they wait to collect their pensions. To maximize their pension benefit—an understandable preference—some late-career teachers remain teaching even when they might otherwise prefer to retire. That may not be a good thing for teachers or students.

Finally, the paper also speculates on what happened financially under the early retirement incentive program. Using back-of-the-envelope calculations, the authors estimate that school districts saved $550.5 million by replacing older, more expensive teachers with younger, cheaper ones. But, importantly, that’s not the end of the story. The state pension plan was forced to start paying out benefits to teachers before it otherwise would have. The authors estimate the pension plan faced increased costs of $642.8 million. In other words, the early retirement incentive cost Illinois $92.3 million. That money won’t come directly out of individual district budgets—it’s shared by the state and all of its districts—and unlike salaries it doesn’t have to be paid for right away, but it is a real expense that must be paid eventually by state taxpayers.

-Chad Aldeman




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