Kevin E. Cahill on “Pension Generosity in Oregon and Its Impact on Mid-Career Teacher Attrition and Older Teachers’ Retirement Decisions”
Presentation at the 2016 Fall Research Conference of the Association for Public Policy Analysis and Management (APPAM)
November 6, 2016
Oregon’s Tier One Public Employees Retirement System (PERS), which covered members prior to January 1, 1996, was one of the most generous pension plans ever devised. In this paper we document the generosity of Oregon’s Tier One plan and examine the extent to which Oregon’s pension system impacted its K12 workforce, as greater pension generosity could incentivize longer tenures. In the case of Oregon, however, the true magnitude of its pension generosity was largely unknown to teachers until just prior to retirement. As such, any economic incentives to promote longer tenure among mid-career teachers were muted, while the plan’s generosity, once revealed just prior to retirement, created strong wealth effects that enabled earlier K12 exits. Based on an analysis of more than 57,000 Oregon teachers active from 2000 to 2013 we find that mid-career quit rates among teachers covered under Tier One did not differ systematically from those covered under Oregon’s more recent pension plan provisions. Quit rates among Oregon’s Tier One teachers were even somewhat higher than those among teachers in Washington who were covered by plans that were substantially less generous. Further, using work histories on 8,621 teachers in Oregon who were aged 50 and older in 2000 we find that the generosity of Oregon’s Tier One pension encouraged earlier departures from the K12 workforce, with teachers leaving, on average, one year earlier than what would have been expected under Oregon’s full formula, defined-benefit plan. We conclude that pension generosity alone does not incentivize longer tenure—even in the extreme case of Oregon—as the true generosity of a plan must be known to employees in advance.