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Pension Meltdown
Teachers’ Pensions Deserve Detention

Pension benefits for U.S. public school teachers work best for the long-timers while stiffing the young teachers who are supposed to succeed them. That’s the upshot of a piece in the Atlantic about two new studies on pensions put out by Bellwether Education Partners and the Urban Institute. Part of the problem is that career changes threaten teacher pensions. “In the typical state”, the piece notes,  “a teacher who changes careers (or, in some cases, moves to a different state to teach) sacrifices $5,000 a year in pension benefits, according to one analysis.” More:

[Bellwether’s Chad] Aldeman and his Urban Institute colleague Richard W. Johnson tallied the number of years a rookie teacher at age 25 would need to work in the same state before the teacher’s pension benefits exceed what he or she put into the plan as an employee. Twenty-five years is what they registered, suggesting that for many educators the pensions may be a worse value than a standard investment account. […]

The minimum number of years teachers must work before becoming eligible for even a portion of their pensions is known as a vesting period. A little over a dozen states, including states with large teacher populations such as Illinois and New York, have vesting periods of 10 years, meaning a public-school teacher in one of those states who leaves his or her teaching job in, say, nine years loses access to significant retirement dollars. In Massachusetts, Aldeman estimates a teacher in this situation would forfeit $105,000. That’s on the extreme end, though: The typical teacher forgoes about $22,000 for leaving before his or her retirement eligibility comes into effect.

This disadvantages younger or newer teachers who may only teach for a few years before either moving states or changing careers, not to mention provides a disincentive to get into teaching in the first place unless you’re really, really sure you want to stay in one place and one career for the duration. As we’ve said before, a rotating cadre of young teachers who may only stick around for a few years would bring a necessary vitality to our public school systems. The pension schemes encourage exactly the opposite.

And there’s another problem: the system itself is teetering. Teachers’ pension funds fall short of full funding by half a trillion dollars, and though they were designed not to rely on the contributions of young workers in a sort of Ponzi scheme, as the author of the study avers in the Atlantic, the plans are now “using are new teachers … to prop up the existing debt.” If you thought being tied to your teaching post in Poughkeepsie for thirty years was a deal-breaker, try that on for size.

U.S. retirement benefits for teachers need some fixing, though some of the suggestions (like cutting benefits for longtime teachers as well as for young or future ones) are the very definition of a hard sell. Switching to plan types that wouldn’t short-change youngsters quite so much, like 401(k)s, should receive due consideration. There’s room for improvement here, as we’ve all heard a teacher say at some point. Policy makers should take note.

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  • Andrew Allison

    All well and good, but the larger problem is teachers’ dedication to educating their charges. The real teachers will stick around; what’s need is culling of the the time-serving incompetents.

    • Kevin

      I’m not so sure the best ones stuck around. The best teachers I had were only doing it for a few years before moving on to another career. The ones who stayed were this who had little opportunity to excel in other careers.

      • Andrew Allison

        Those who can do, those who can’t “teach”? The fact that those who are good for nothing else stick around is precisely the problem to which I alluded.
        My experience was completely different: the teachers I had were dedicated to their students and their vocation, something for which I am profoundly grateful. That, of course, was over 60 years ago.

    • f1b0nacc1

      1) Elimination of tenure
      2) Merit pay/promotion combined with elimination of seniority as a consideration for pay/promotion
      3) Banning all teacher’s unions (see (1) and (2) for how to operationalize this)
      4) Radical reform of licensing/certification requirements for teachers
      5) Elimination of public funding (in practice ALL funding) for schools of Education at the undergraduate/graduate level
      6) Close the Department of Education, devolve its funding to the states, preferably the school districts
      That should be a good start. We can work on the public executions next (grin)…

  • L W

    Maybe the “time-serving incompetents” (see previous comment) became that way partly because of these schemes that lock people into place. Picture a bright-eyed rookie teacher starting out with ambitious plans of changing the world through his/her students. Fast forward to that person at mid-career, when they realize the education system and/or teaching is not for them, but the financial costs of switching out and starting over are too great. I could see how someone in that situation can start on the path of becoming a time-server. The pension problems described in the article contribute to that financial cost. I’m not trying to defend incompetent, time-serving teachers, just pointing out that some are there even though they don’t want to be, and the pension system is part of the barrier keeping them from leaving.

    It would be interesting to put a lump-sum, dollar figure on the “$5,000 a year in pension benefits” quoted in the article. What does it cost to buy an annuity upfront that pays that much? Say, at age 45 and 65.

  • CapitalHawk

    Your description of teachers’ pensions sounds exactly like the social security system: great deal for baby boomers and everyone older, bad deal for everyone younger (most of the youngsters just don’t know it yet).

    • ronetc

      Social Security is not a “great” deal for us baby boomers, either–pitiful, nearly no return . . . it’s just that it’s even worse for younger people

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