ABSTRACT
A majority of career teachers in Missouri defined benefit pension plan reach their pension wealth peak before their 31st year of service. The 2002 pension enhancement in Missouri generates a local gain in pension wealth that is lower than the peak and also creates an eligibility milestone at the 31st service year. To test whether the 31st year enhancement affects retirement timing decisions for mid- to late-career teachers, I use administrative data of Missouri teachers and employ difference-in-differences models. I find that the 31st year enhancement reduces the likelihood of retirement at early and full retirement eligibilities, and helps retain experienced teachers.
Acknowledgments
The views expressed here are those of the author and should not be attributed to his institution or data provider. Any and all errors are attributable to the author.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1 Pension wealth in this paper is calculated as the present value of pension benefits following Koedel and Xiang (Citation2017).
2 FAS is calculated using the three highest consecutive years of salary in Missouri PSRS.
3 All teachers who are eligible for the 31st year enhancement had at least one opportunity to retire with unreduced benefits under full retirement. In PSRS, teachers are full retirement eligible when they have 30 or more years of service, or their sum of age and service years are 80 or more (i.e., rule-of-80).
4 The pension wealth gain of $5,000 for treatment teachers is compared to comparison teachers as highlighted by the solid vertical line in .
5 As it is documented that early-career teachers’ labour supply decisions are less likely to be affected by pension incentives (French and Jones Citation2012; Koedel and Xiang Citation2017), I start the analysis from the 20th service year.
6 Average retirement rate for teachers in this sample age group is 28%.
7 The negative effect on retirement likelihood is also identified at the 22nd service year with a higher p-value.
8 Note that monthly pension benefit levels continuously increase when a teacher continues to work (due to higher years of service) with a jump in benefit levels at the 31st year (due to an increase in formula factor to 2.55 from 2.5).
9 Average retirement rate for teachers in this sample age group is 33%.
10 Average retirement rate for teachers in this sample age group is 6.1%.