Pension plans change the labor market for principals and teachers.
Keeping great educators in the classroom is one of the most effective ways to improve the quality of public schools. To retain teachers and principals, school systems have traditionally offered defined-benefit (DB) pension plans in which educators accrue benefits for every year they teach, with the largest benefits accruing in the years just before retirement. Educators who retire early forgo a large share of their retirement benefits, so teachers and principals have big incentives to stick around.
In “Pension-Induced Rigidities in the Labor Market for School Leaders,” authors Koedel, Grissom, Ni, and Podgursky examine how DB plans impact the labor market for principals between districts. Examining administrative panel data from Missouri, the authors compare patterns of school leader mobility between school systems with pension reciprocity agreements and those without such agreements.
Reciprocity agreements allow educators who transfer between school districts to keep their pension benefits. Without reciprocity agreements, educators moving between districts lose all of their accrued benefits. The authors find that, even after controlling for other factors, pension reciprocity remains a significant factor in the rate of inter-district mobility.
Of course restricting the mobility of educators can cut both ways. On one hand, tying educators into restrictive DB plans provides powerful incentives for them to remain in their home school district: The loss of pension wealth from a transfer can be significant. Missouri teachers hired into a leadership position outside of their home district could lose up to $283,638 if the hiring district does not participate in a reciprocity agreement.
On the other hand, restrictive systems also limit the pool of potential applicants when a position becomes available. This presents a problem in Missouri, where 67 percent of school leaders are hired directly from the pool of Missouri teachers. School districts with reciprocity agreements were able to hire roughly 5 times the number of out-of-district teachers as other districts. By one estimate, removing pension barriers could increase the probability that teachers take a job outside of their home district by approximately 85 percent.
There’s good reason to believe that great schools are unevenly distributed among districts, so increasing mobility might be one way to improve equity among schools. The authors suggest a state-funded compensation system as one solution. But it’s unclear if such a proposal could find much political support. School systems with a surplus of talent won’t be in any rush to make it easier for their best and brightest to jump ship.