Education Commons^™

Cross-Subsidization Of Teacher Pension Costs: The Impact Of Assumed Market Returns, Robert M. Costrell, Josh B. Mcgee

Education Reform Faculty and Graduate Students Publications

It is well-known that public pension plans exhibit substantial cross-subsidies, both within cohorts, e.g. from early leavers to those who retire at the “sweet spot”, and across cohorts, through unfunded liabilities. However, the cross-subsidies within and across cohorts have never been provided in an integrated format. This paper provides such a framework, based on the gaps between normal cost rates for individuals and the uniform contribution rates for the cohort. Since the unfunded liabilities and associated cross-subsidies across cohorts derive from overly optimistic actuarial assumptions, we focus on the historically most important such assumption, the rate of return. We present …