Identifying Teacher Salary Spiking and Assessing the Impact of Pensionable Compensation Reforms in Illinois

Abstract

Defined benefit (DB) pension plans incentivize “salary spiking,” where sharp increases in pay are leveraged into significantly higher levels of retirement compensation. While egregious instances of salary spiking occasionally make headlines, there is little guidance on the definition of salary-spiking behavior or understanding of its prevalence. We develop empirical methods to quantify the prevalence of salary spiking by identifying cases where end-of-career compensation deviates from the expected level of compensation. We apply this method to teacher pension systems in Illinois to assess the prevalence of salary spiking before and after the implementation of a reform designed to dissuade salary spiking.