Labor Market Effects of Pensions and Implications for Teachers Jan 01, 2011 By Leora Friedberg Labor Market Effects of Pensions and Implications for Teachers While the retirement security landscape has changed drastically for most workers over the last twenty years, traditional defined benefit (DB) pension plans remain the overwhelming norm for K–12 teachers. Because DB plans pay off fully with a fixed income after retirement only if a teacher stays in the profession for decades and yield little or nothing if a teacher leaves early, DB plans induce a strong, nonlinear relationship between years of tenure and benefit accrual. One implication is that as many current teachers approach eligibility for full pensions, there are strong incentives for retirement and associated consequences in the teacher labor market. In this article, we assess the key features of DB plans, discuss the general incentive effects, and consider the application to the particular case of teachers. This work highlights the importance of assessing the characteristics of teachers who respond most to the retirement timing incentives. Journal of Pension Economics and Finance Journal of Pension Economics and Finance Areas of focus Education Leora Friedberg Leora Friedberg is an associate professor of economics and public policy at the Batten School and an associate professor and Vice Chair at UVA's Department of Economics. Her focus is on labor economics, including research on social security, aging and retirement economic impacts. Read full bio Related Content Leora Friedberg Labor market aspects of state and local retirement plans: a review of evidence and a blueprint for future research Research Traditional defined benefit (DB) pension plans remain the overwhelming norm for teachers, policemen and other employees of state and local governments. The incentives for workers with DB pension plans to stay in their jobs shift dramatically over the course of their careers. Pensions and K-12 Teacher Retirement: An Analysis Using National Teacher Data Research The retirement security landscape has changed drastically for most workers over the last thirty years – except for public school teachers and other state and local government employees. Many private-sector employers have stopped offering traditional retirement plans, while most state and local employees remain covered by defined benefit (DB) pension plans.