Regional Educational Laboratory - Southwest

Using Pension

Data: the case of

ArkansasPresented by:

Robert M. CostrellUniversity of Arkansas

June 8, 2009Institute for Education

SciencesWashington, DC.

Edvance Research, Inc.

Incentive Structure◦ Pension Wealth Accrual

Data to Analyze Labor Market Response◦ Dept of Education & Teacher Retirement System

Raw TabulationsEconometric AnalysesPolicy SimulationsResearch Questions

(presentation based on joint work with Mike Podgursky, Josh McGee)

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Outline

Pension formulas embed strong incentives◦A “pull” to work until reaching pension spike◦A “push” to retire shortly thereafter

Incentives embedded in wealth accrual◦Net present value of discounted benefits◦Annual accrual is deferred income from

additional year of workCan be calculated from benefit formulas

◦Eligibility rules for normal & early retirement

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Incentive Structure

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Annual Accrual in Arkansas

-100%

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25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65

per

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t o

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age at separation (entry age = 25)

Annual Change in Pension Wealth, as percent of Earnings: AR Female(net of interest and net of employee contributions)

The “pull” to the spike

The “push”: negative accrual

(without T-DROP)

ADE Teacher Longitudinal Files◦Can be used to track separations◦ Teacher characteristics

ATRS Pension File Snapshot◦Active, inactive, retired◦Years of service, DOB, final average

salary◦Other pension characteristics, esp. DROP

ADE-ATRS cooperation in linking files◦Identifier replaced to preserve

confidentialityJune 8, 2009 Edvance Research, Inc. 5

Data Sets

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Raw Data on Retirements

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Credited YOS + Years in T-DROPcontributory only. Data source: Arkansas Teacher Retirement System

Distribution of Arkansas Retirements, 1998-2008, by Years of Service

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Econometric Analyses

CA: Brown (2006, 2009)PA: Ferguson, Strauss, Vogt (2006)MO: Podgursky, et. al (2009)AR: Costrell & McGee (2009)

See NCPI Conference papers.www.performanceincentives.org/conference/papers2009.asp

Other states at earlier stage of data acquisition

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Years of Service

Figure 10: Predicted Separation Probabilities(ATRS Accrual, 25 year old entrant)

non-T-DROP T-DROP

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AR Estimation: Linked Data

Predicted Separation Probabilities-ATRS AccrualPredicted Separation Probabilities-ATRS Accrual

25-year old entrant

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Years of Service

FIgure 12: Predicted Separation Probabilities, Constant Accrual Plan(Constant Accrual @ 30%, 25 year old entrant)

Non-T-DROP T-DROP

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AR Policy Simulation

(preliminary)Predicted Separation Probabilities-Predicted Separation Probabilities-Constant AccrualConstant Accrual

25-year old entrant

Differential Labor Market Responses◦By demographics (e.g. urban/rural; M/F)◦By teaching field (HS/elem; science/math)

Policy Simulations◦Changes in pension parameters◦Changes in pension regime (e.g. cash

balance)Fiscal Analyses

◦Transition costs for policy changes

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Research Questions

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REL Southwest Forum

Educator Staffing, Quality, and Teacher Retirement Benefit Systems

Wednesday, July 29, 2009Omni Dallas Hotel at Park West

Dallas, Texas

To learn more contact: Kimberly Brusterkbruster@edvanceresearch.com or 210-558-

4133