We can combine the pension
wealth accrual curves discussed above with the estimated teacher retention rates.
Economists like Bob Costrell and Mike Podgursky have been drawing pension
wealth accrual curves for several years now.
Unlike the current system, which features large financial incentives for teachers to retire precisely at a pre-determined age (New York City teachers who begin at age 25 currently hit peak pension wealth at age 63), the new system would offer teachers a smooth
wealth accrual that would allow them to time their retirement decisions as they saw fit.
At that point, she will have contributed a total of $ 135,149 into the system and can expect lifetime pension
wealth accrual worth $ 143,322.
What type of deferred compensation plan (and associated pension
wealth accrual) is the best way to recruit, retain, and motivate a high quality teaching workforce?
Pension
wealth accrual drops off dramatically over the years following, with another sharp spike at age 60 (35 years» experience).
Second, there would no longer be «peaks» and «valleys» in pension
wealth accrual — one year would be the same as any other as far as pension
wealth accrual is concerned.
What features of the benefit formula give rise to such sharp spikes in pension
wealth accrual?
The peaks and valleys of pension
wealth accrual create large pull - push incentives.
The primary drivers of pension
wealth accrual are changes in the annual annuity payment (determined by the benefit formula) and the number of years the teacher can expect to collect.
Once a teacher gets past the spike (or spikes), pension
wealth accrual turns negative.
However, her 25th year of teaching (at age 50) allows her to begin collecting pension checks five years earlier, producing a sharp spike in
wealth accrual.
Shows pension
wealth accrual, net of employee contributions, adjusted for inflation, for a 25 - year old entrant.
A teacher can earn such multiples of her salary in pension
wealth accrual during a peak year in her early or mid-fifties, and then start losing pension wealth if she continues to work for the rest of her fifties.
We invite the reader to consider the widely different patterns of pension
wealth accrual for these three teachers.
When pension
wealth accrual turns negative, this is like a tax on earnings.)
Each line represents the pension
wealth accrual (essentially a teacher's annual pension multiplied by the number of years she can expect to receive it) for 25 - year - old females at given points in time.
The only real way to solve this problem is to close the current systems to new entrants and place them in a new, statewide system that participates in Social Security and has smooth
wealth accrual.
They are transparent, offer smooth
wealth accrual, and are readily annuitized at retirement.
Figure 1 makes it possible to compare career - cycle pension
wealth accrual for a teacher to that for a representative principal and superintendent.
That is not the case with current systems, where pension -
wealth accrual is highly back loaded and concentrated at certain arbitrary points in teachers» careers.
The nearly vertical slope of the pension -
wealth accrual curves leading up to age 50 shows the powerful «pull» incentives in these plans, which encourage educators to stay in their jobs.
In our own work, we have shown sharp «peaks and valleys» in pension
wealth accrual, which distort incentives for retirement (see «Peaks, Cliffs, and Valleys,» features, Winter 2008).
He claims costs will rise for decades because entering cohorts have a different time pattern of pension
wealth accrual than previous cohorts.
This mixed pattern is supported by Costrell and McGee's findings, in their 2010 peer - reviewed econometric study of teacher response to pension
wealth accrual.
The wealth needed at 65 is discounted to the current age of the person being observed to account for the increase in the amount of existing wealth by age 65 and a second time to account for continuing
wealth accrual (i.e. new retirement saving).
However, even this is inadequate; the portion of salary required to pay for pension
wealth accruals of current teachers and to pay off the unfunded liability is 31.3 percent.
That's because teachers don't have a right to future pension
wealth accruals.
Not exact matches
Costs can not rise unless some cohort enjoys higher benefits and, hence, higher lifetime
accruals of pension
wealth.
A useful lens for understanding the incentives built into these plans is the rate of «pension
wealth»
accrual over the career cycle.
This graph is of interest in its own right (see our paper), but it does not represent the annual change of pension
wealth (known as the
accrual rate).
In Figure 2 we report the annual
accrual or change in pension
wealth as a percent of annual earnings for a female Ohio teacher who enters at the age of 25 and works continuously.
By contrast, in teacher pension plans, the
accrual of pension
wealth is highly erratic and backloaded, with huge «peaks» in certain years, followed by «cliffs» and «valleys.»
Concerning the
accrual of pension
wealth, one actuary noted — «you can make the lines look however you want.»
It is possible to design DB plans that keep the investment risk with the employer, but allow smoother and fairer
accrual of pension
wealth for educators.
Therefore, plans with a constant multiplier and that base retirement on an age in line with Social Security are likely to create the most uniform
accrual of
wealth.
This allows continuous compounding of your
wealth, for you in terms of tax free
accrual of cash value and for your loved ones in terms of an accruing death benefit.
Accrual accounting gives the user tools to use in estimating future
wealth creation.
And in psychological experiments, people with «self - enhancing» values — those that relate to the
accrual of
wealth, power or status to oneself - were found to be more vulnerable to the moral hazard in geoengineering.
TREB says change could produce many benefits for Realtors, such as a lower income tax rate, greater accumulation of
wealth through long - term tax deferral, providing a vehicle for retirement savings, faster repayment of debts, cheaper funding of non-deductible expenses, providing an incentive to save, providing individual pension plans, tax deferral on bonus
accruals and a capital gains exemption.