Chingos and West on Florida’s Pension Reforms

Matt Chingos and Marty West have a new paper published by Fordham examining pension reforms in Florida.  Specifically, Florida offered its new teachers the option of choosing between a defined benefit and a defined contribution retirement plan.  The defined benefit plan is the type most commonly found for teachers and defined contribution is more commonly found for private sector workers.

Defined benefit plans have some unusual characteristics that may push some teachers out of the workforce before they really should leave and may keep others as teachers longer than they should.  These defined benefit plans also reward long-serving and immobile teachers at the expense of shorter-serving and more mobile teachers, like those most commonly found in charter schools.  And defined benefit plans shift all of the risk for achieving sufficient investment returns to the government, which given recently weak investment returns, government under-funding of plans, and overly generous promised benefits is putting many states in serious financial trouble.

So states like Florida are considering shifting more teachers to defined contribution plans, which are more like 401k plans where the employer and employee each contribute money to an investment account and then the employee bears the risk of investment returns.

Matt and Marty addressed four questions in their study: 1) What portion of new teachers have chosen the defined contribution (DC) option? 2) What kinds of new teachers were more likely to make that selection? 3) Did the teachers who chose DC more likely to be effective teachers? and 4) Is there a difference in attrition between new teachers who choose DC or defined benefits (DB)?

The quick answers are 1) Between a quarter and a third of new teachers chose DC.  This is a surprisingly large share choosing DC, especially given that DB was the default option.  2) Teachers with more advanced degrees and degrees in math and science (presumably those with the most attractive options outside of teaching) were more likely to choose DC.  3) There was relatively little relationship between whether a teacher chose DC and their later effectiveness as measured by value-added scores. 4) New teachers who chose DC were more likely to leave their teaching positions.

Check out the full report to see all the details.

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4 Responses to Chingos and West on Florida’s Pension Reforms

  1. inteach says:

    DC= work until your 70

    DB= work until your 60

  2. momof4 says:

    In a world where many teachers are married and spousal transfers exist, defined-contribution with portability makes far more sense. The current system has always hurt military-spouse teachers and teachers married to those in other sectors where transfers are frequent (like finance, banking, hospitality), since those spouses don’t stay in one system or even one state and so get no pension.

  3. inteach says:

    A teacher working in Winchester, IN starts off making $32,000 a year.

    The school district only contributes 1.5% of her salary towards her state annuity. The rest comes out of her take home pay

    Take away her defined benefit, and she has no retirement.

    You want portability, you can have it.

    But don’t mess with the solvency of this teacher’s retirement fund.

  4. Teacher Joe in LA says:

    Inteach makes an important point that need research. What is the distribution curve of Local Districts/state contributions to DB and DC plans. Absent from this blog’s arguments (and the arguments of consevative think tanks like Heritage) is the number of times government skips there payments into the pension systems because of their budget problems. Also missing is an scknowledgment that pension promises were often made in lieu of pay increases. I’m a Republican public school teacher. I would choose DC if starting today. But to change the rules of my pension after 23 years of service and 58 years old would be unfair. I have no problem with needing to work longer.to get full pension. I have no problems with geting rid of spiking (But its the administrators who are abusing this system badly. They have the authority to pay each other 1-3 years of much higher salaries. I don’t). I think conservatives will find that they will save less than they think when all the elements play out. So-called fat pensions were the government’s choice for not paying teacher’s a rate of salary increase comparable to those received by the private sector.

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