This paper examines pension benefit choices made by public school teachers vested in the Illinois Teachers’ Retirement System (TRS) who quit teaching well before retirement eligibility. Teachers who separate have the option of keeping their funds in TRS and collecting a pension at a future date or withdrawing them (“cashing out”). We examine how variation in pension wealth at separation affects this decision, what that reveals about individual discount rates, and how these decisions are affected by teacher characteristics such as race and gender.
Teacher Labor Markets
Most educators in the United States receive retirement compensation via a subnational defined-benefit (DB) pension plan. These plans exert strong “pull” and “push” incentives over the course of the career and concentrate teacher retirements at relatively early ages compared to other professions. They also impose sharp penalties on geographically mobile teachers. Teacher pensions are a large and growing cost of public education. There are several reasons for the rising costs, but the biggest reason is that the unfunded liabilities of most plans are growing.