Teachers deserve their pensions

A defined-benefit pension has long been a staple of the teaching profession.  But lately it is coming under fire as responsible for huge deficits in state budgets (“Pensions Under Pressure,” Education Next, Spring 2018).

Rather than rehash the failure of state legislatures to uphold their end of the bargain or argue for slashing pensions, I’d like to suggest another solution.  Teacher pensions at present are heavily back-loaded.  Salaries in the early years are kept low.  It’s only when teachers stay for 25 or 30 years do they get a payoff.  In other words, pensions plans are designed to favor the minority who teach in a single system for a working lifetime, while penalizing those who leave before then.  For example, the Pennsylvania Public School Retirement System estimates that about 80 percent of teachers will leave before their pension benefit is worth a single dollar.

There are talented college graduates who would like to teach if beginning salaries were higher.  Why not offer all new teachers the choice of bigger increases in the early years in exchange for a reduced pension at the end?  Personally, I prefer the traditional plan, even though I recognize its shortcomings.  But there are other teachers who for one reason or another would like to have a choice.  They might also favor a defined-contribution pension.

Finally, it’s time to consider making pensions portable.  Teachers are reluctant to leave their state’s plan if it means forfeiting what they’ve accrued. No one wants to leave money on the table. It’s here that charter schools are worth studying. Some 68 percent of charter schools opt out of state plans, offering a portable, defined-contribution plan.  That might appeal to young teachers fresh out of college who wish to teach for a few years before moving on to another career. With looming teacher shortages in science, math and special education already a concern, anything that can help alleviate the problem is worthwhile studying.

(To comment, click on title of this blog.)

 

 

 

4 Replies to “Teachers deserve their pensions”

  1. Having taught in both Massachusetts and Florida, the difference is alarming. In MA, you usually reach your max pay between 12-15 years. You will continue to receive cost of living raises. In at least one community, the longer you stay, you receive extra bonuses every five years. In FL, it takes at least 30 years to reach maximum salary. I have a grandson, who at the age of 22, was making the same salary as a 52 year old teacher in my FL county. To me, that is pathetic. If states have underfunded the pensions, they should be held legally responsible.

    I love your comments and columns.

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    1. mathcoach2: You’re quite correct about the disparities in pay among states. Teachers in Oklahoma earn $45,000 a year on average. If they moved to Texas, they would earn considerably more. Yes, there are some school districts where teachers can make $100,000 annually (e.g. in the New York City suburbs), but they are outliers. Despite the anemic pay, critics want to slash teacher pensions. It’s a bleak situation.

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  2. One huge problem with defined benefit pension plans is — as you correctly note — that state and local govt officials often (almost always) fail to fully fund the benefit entitlements as the benefit entitlements accrue. In other words, today’s govt officials promise today’s teachers higher pension benefits in lieu of higher current wages, fail to fully fund the promised higher pension benefits, and are themselves long-retired and out-of-office when the bill comes due for those promised higher pension benefits.

    Switching from a defined benefit pension plan to a defined contribution plan immediately solves this problem. The state and local govt officials have to pay the defined contribution match into the plan each year, so there is no unfunded liability to haunt the taxpayers and teachers down the road.

    The key to making this work — from the teachers’ viewpoint — is to ensure that the employer contribution to the defined contribution plan is equal or greater than the current value of the defined benefit plan that the defined contribution plan is replacing. The govt officials who establish the defined contribution plan (unilaterally or through collective bargaining with the teachers union) will rarely, if ever, set the employer contribution high enough to equal the current value of the defined benefit plan that the defined contribution plan is replacing. If the employer contribution was that high, then the govt would be breaking even or losing $ on the switch to the defined contribution plan and the govt would not be willing to make the switch.

    These real-world facts put teachers unions in a difficult position. As you correctly note, a defined contribution plan — even one with a relatively small employer contribution — is a better deal than a defined benefit plan for all those junior teachers who will leave teaching (or at least the school systems covered by the defined benefit plan) prior to vesting of their defined benefit plan benefits. So — junior teachers should, on average, want the union to press for a defined contribution plan. However, virtually all of the senior teachers — who are fully vested in the existing defined benefit plan — will want the union to press for continuation of the defined benefit plan. And, many of the junior teachers will — at any given point in time — believe (often incorrectly) that they will stay in the system long enough to achieve vesting in the defined benefit plan. In these circumstances, most teachers unions will resist switching to a defined contribution plan.

    What is probably the fairest and politically most feasible approach is for management and the union to negotiate a defined contribution plan to cover new hires while continuing the defined benefit plan for the current teachers, perhaps with a one-time option given to the current teachers to switch to the defined contribution plan with the employer making a one-time contribution to the defined contribution plan equal to the current value of the teacher’s already-accrued defined benefit plan benefits.

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    1. LaborLawyer: Teachers need to be given a choice, which they don’t have at present. I think that the option would be an incentive for the best and the brightest college grads to consider teaching. I knew that I wanted to make teaching my career. But it’s a mistake to assume that others feel the same way. It’s appalling that so many teachers leave before their pensions are worth a single dollar.

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