Public school teachers retire much earlier than comparable professionals. Pension rule changes affecting new teachers can be used to close this gap in the long run, but any effects will not be observed for decades and the implications for workforce quality are unclear. This paper considers targeted incentive policies designed to deter retirement among senior, experienced high-need science and math teachers, as a policy to staff classrooms with qualified teachers and improve workforce quality. We use structural estimates from a dynamic retirement model to simulate the workforce effects of targeted late-career salary bonuses and deferred retirement plans (DROPs) using administrative data from Missouri. Although both policies produce additional teaching years at relatively low costs, by forcing teachers to reveal work–retirement preferences, DROPs generally yield incremental teacher years at lower cost per year. More generally, this work highlights the utility of using structural retirement models to analyze fiscal and workforce effects of changes to public sector pension plans, since the effects of pension rule changes cumulate over many years.

During the late 1990s public pension funds across the United States accrued large actuarial surpluses. The seemingly flush conditions of the pension funds led legislators in most states to substantially improve retirement benefits for public workers, including teachers. In this study we examine the benefit enhancements to the teacher pension system in Missouri. The enhancements resulted in large windfall gains for teachers who were close to retirement when the legislation was enacted. By contrast, novice teachers, and teachers who had not yet entered the labor force, were made worse off. The reason is that front-end contribution rates have been raised for current teachers to offset past liabilities accrued from the enhancements. Total teacher retirement compensation, net of contribution costs, is lower for young teachers today as a result of the enhancement legislation. Given sharp increases in pension costs in other states, this finding may generalize to young teachers in many other plans.