Deferred Compensation for K-12 Public Defined Benefit Pension Plans: An Empirical Analysis for Five State Plans

Abstract

State K-12 education defined benefit (DB) retirement plans have received renewed attention for severe under funding problems. Less attention has been given to the benefit side of plans that often incorporate behavioral incentives contributing to under funding problems. To extend understanding of deferred compensation in K-12 pension plans, this study uses a unique dataset of retiree characteristics and salary histories to analyze deferred compensation in a selected sample of K-12 pension plans. Results indicate sizable levels of deferred compensation for each plan using five alternative measures of deferred compensation, with substantial differences across plans, job classes, and age groups. Our results contradict the assertion that large pension values are largely the result of large employee/employer contributions, with the largest pension values for plans with the lowest historical funding levels. We also find that reduced benefits for early retirement provided an even larger incentive for younger retirement than full, unreduced benefits.

Keywords: Defined benefit pension plans, Compensation, Salary history, Public employees, Retirement policies, Public Pension Plans, K-12 Public Pension Plans

JEL Classification: G23, I22, J26, J33, J58, J63