Abstract
Most U.S. public school teachers participate in defined benefit retirement plans, which base benefits on years of service and their last few years of salary. These plans are often backloaded and include sharp economic incentives. We consider the implications of transitioning to a cost-equivalent defined benefit plan under which teachers would earn benefits more evenly across their careers. We show that new teachers who are risk averse would prefer the alternative plan. The magnitude is often substantial. For example, for an entering teacher the certainty equivalent for the CB plan is about 2.1 times the certainty equivalent for the respective FAS plan in New York City and 29 times larger than the respective heavily backloaded FAS plan in Philadelphia.
Keywords
Get full access to this article
View all access options for this article.
References
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
