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Cross-subsidization of teacher pension benefits: the impact of the discount rate

Published online by Cambridge University Press:  05 November 2018

Robert M. Costrell
Robert M. Costrell*
Affiliation:
Department of Education Reform, University of Arkansas, Fayetteville, AR72701, USA
*
*Corresponding author. E-mail: [email protected]
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Abstract

This paper builds on previous work (Costrell and McGee, 2017a, Education Finance and Policy) on the redistribution of teacher pension benefits, as measured by the wide variation in individual normal cost rates by age of entry and exit, and the associated cross-subsidies. The further steps taken here are: (i) to examine the impact of the discount rate on the degree of redistribution, and the analytics behind it; and (ii) to identify the distribution of the market value of the pension guarantee. Using the example of the California State Teachers’ Retirement System, I find that: (i) high-assumed returns substantially understate the extent to which costs are redistributed for back-loaded plans; and (ii) the market value of the pension guarantee is highly concentrated among long-term teachers.

Keywords

Cross-subsidiespublic pensionsteachers

JEL classification

H75: State and Local Government: Health • Education • Welfare • Public Pensions I22: Educational Finance • Financial Aid
Type
Article
Information
Journal of Pension Economics & Finance , Volume 19 , Issue 2 , April 2020 , pp. 147 - 162
Copyright
Copyright © Cambridge University Press 2018

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