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Cross-Subsidization Of Teacher Pension Normal Cost: The Case Of Calstrs, Robert M. Costrell, Josh B. Mcgee

Education Reform Faculty and Graduate Students Publications

Under traditional defined benefit pension plans, annual contributions are set at a uniform percentage of pay to fund accruing benefits. That normal cost rate masks wide variation in the cost of individual benefits, generating an extensive and non-transparent pattern of cross-subsidization. We provide a comprehensive analysis of cross-subsidies in employer contributions across all entry and exit ages. The gains and losses of winners and losers must add up to zero, and we explain why they do not in some previous work, which claims that nearly all teachers are winners in the California Teachers Retirement System. To the contrary, we find …