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The link between pensions and retirement timing: Lessons from California teachers. (Brown 2013)

Absence of conflict of interest.

Citation

Brown, K. M. (2013). The link between pensions and retirement timing: Lessons from California teachers. Journal of Public Economics, 98(C), 1-14.

Highlights

  • The study examined the impact of pension reform under the California State Teachers’ Retirement System (CalSTRS) on retirement timing.
  • The author used a statistical model and data from retirement-eligible employees in Los Angeles Unified School District from 1997 to 2000 to estimate the impact.
  • The study found public school employees were more likely to work an extra year in response to changes in pension plans that provided additional bonuses tied to age and tenure.
  • The quality of causal evidence presented in this report is low because the authors did not ensure that the groups being compared were similar before the changes in CalSTRS. This means we are not confident that the estimated effects are attributable to the changes in CalSTRS; other factors are likely to have contributed.

Intervention Examined

CalSTRS Defined Benefit Program

Features of the Intervention

In January 1999, public school employees became eligible for higher maximum pension benefit factors, increasing from 2 percent to 2.4 percent of their salary times age. The maximum benefit factor became available to teachers at age 61.5 (if they had already worked 30 years) or age 63 (if they had not worked 30 years), compared with age 60 pre-reform. There was also a bonus for working 30 years or more for those who retired between age 55 and 60.

Features of the Study

The primary analyses estimated the elasticity of lifetime labor supply, but this review focuses on the alternative specification estimating the likelihood of continuing to work an additional year. The author estimated probability of continuing to work an additional year based on pension wealth, peak value of pension benefits, and unexpected changes in financial incentives. The author used a regression model with instrumental variables on a sample of more than 20,000 observations of teachers in Los Angeles Unified School District ages 55 to 75 from 1997 to 2000.

Findings

Employment

  • The study found that teachers were significantly more likely to work an additional year because of changes in pension plans that incentivized retiring at a later age.

Considerations for Interpreting the Findings

The study did not account for potential differences in race between groups, and it seems that the administrative data do not include information on race. The potential differences in race between the groups -and not the changes in CalSTRS- could explain the observed differences in outcomes.

Causal Evidence Rating

The quality of causal evidence presented in this report is low because the authors did not ensure that the groups being compared were similar before the changes in CalSTRS. This means we are not confident that the estimated effects are attributable to the changes in CalSTRS; other factors are likely to have contributed.

Reviewed by CLEAR

September 2019

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