mead cohen berger shevtsova garfinkle michta grygiel blankenhorn bayles
blue model decay
Study Illuminates Workings of Teacher Pension Ponzi Scheme

When critics of the blue model civil service system argue against the defined-benefit teacher pension structure that is bleeding state and local governments dry, defenders usually counter that a more flexible, 401(k)-style system would be unfair to teachers, who deserve an especially generous benefits package. But as it turns out, according to a recent study from the right-leaning Fordham Institute, defined-benefit plans in most states actually operate as a financial penalty for the bulk of teachers, who need to contribute more than they will ever take out. The system primarily exists to benefit the minority of teachers who have spent their entire career in the same profession and the same state.

The median crossover point of the fifty-one districts is twenty-five years (Figure ES-1). That means teachers in more than half of these districts will wait two-and-a-half decades before their retirement benefit is worth more than what they’ve put in themselves. For the thirty-nine traditional defined benefit (DB) plans, the median is twenty-seven years. Only five DB plans have a crossover point of fewer than twenty years—which means that, in the thirty-four other districts with DB plans, nearly three in four teachers will leave the profession before they reach the crossover point. 6 Or phrased another way: Since the average experience of a teacher who leaves the profession is fifteen years—and fewer than one out of four stays more than twenty years—many teachers will never see a “benefit.”

Why do teachers lobby for, and why do legislators acquiesce to, a system that undermines the interests of so many teachers? One answer is that unions are hierarchical organizations where veteran and sometimes even retired teachers—those who have the best deal under defined-benefit pension plans—hold the most sway. Another is bad information—many teachers probably think that they will get more out than they are putting in even though the data show otherwise.

Finally, teachers’ union bosses are politically ruthless—just look at the way they forced the Democratic Party to go to the wall to try to block Betsy DeVos. Many policymakers and much of the public have been convinced that a defined-contribution retirement system that shares benefits more equitably and sustainably amounts to a war against teachers and students, even though it could actually raise the compensation of new teachers and help improve student outcomes by raising teacher quality. Unfortunately, the result of all this is a Ponzi scheme-like apparatus that is undermining American education and busting public budgets for the benefit of a well-organized interest group that doesn’t even represent the interest of vast swathes of its own membership.

Features Icon
Features
show comments
  • M Snow

    I’m not saying that teachers’ union bosses aren’t politically ruthless, but really, who isn’t these days?

    • rheddles

      Republicans.

      • M Snow

        Everyone.

  • FriendlyGoat

    1) It’s worth considering the comment of M Snow here, a conservative with some considerable experience on this subject. If teacher pension systems on the whole were really a bad, bad deal for teachers, she would have taken this opportunity to tell us why the “right-leaning Fordham Institute” study is somehow correct in implying that teachers are dumb and their pensions are dumber. She didn’t.

    2) Many public employee systems are designed for possible retirement with full pension at ages much younger than 65, such as those where “retirement age” is any age with 30 years of service. OF COURSE the people who manage to stay on for that period get much, much more benefit that those who don’t. Any many don’t. But if you drill down in the Fordham study, you will find that many systems will allow teachers to withdraw their own contributions, often with interest, in the event they leave teaching after a few years and go to other lines of work.

    3) Tell me the percentage of Amway dealers who actually earn a living wage from their Amway businesses compared with the percentage of Amway dealers whose efforts mostly supported their “uplines” while making fools out of most of the “downlines” and we can all have a more-enlightened discussion about the wisdom and forthrightness of Betsy DeVos. It’s beyond ironic that an article can be written to justify the heir to Amway’s multi-level sales scheme as Secretary of Education, while implying that older school teachers are scamming the newer school teachers in a “Ponzi-scheme like apparatus”.

    • seattleoutcast

      A comparison to Amway (a slight to our current head of the DOE) is utterly ridiculous. Why not compare the teachers pensions (based on taxes) to those made by retail employees, cleaners, restaurant personnel, dry cleaning operators, gardeners, construction workers, etc (you know, the ones who are getting ripped off by democrats and who voted for Trump.) Those are the ones who cannot live in an inflating world, who cannot afford health care and rents and are paying for your teachers pensions.

      • FriendlyGoat

        1) Do you know how Amway was built?
        2) Do you understand that this article is suggesting that the teachers themselves are putting more money in the pension plans than they may get out? Why don’t you agree with Fordham which is implying those other private-sector workers you mentioned may be better off with their defined-contribution (if any) plans than the teachers are?

        • seattleoutcast

          Amway is irrelevant here. It’s a red herring.

          Many people don’t have plans. That’s my point. They are coerced into paying into other people’s plans. That is theft in my book.

          • FriendlyGoat

            Amway (multi-level sales in general) is a topic that school students should be warned against. Putting its heir in as Secretary of Education is the height of ridiculousness.

            As for pensions, your book is a dumb book. Were it not for the right wing, a great number of people in the private sector would actually still have plans they could count on. It was once a growing norm—–until conservatives killed it.

          • CapitalHawk

            FG – conservatives didn’t kill defined benefit plans, math did.

    • RedWell

      I’d also add that, yes, while pension promises for teachers in many places have grown unsustainable, the real threat to young teachers’ retirement plans today is that their Republican state legislature at some unpredictable point in the future will rearrange benefits and payouts in a way that disadvantages them as much as the insolvent pension.

      • FriendlyGoat

        True. I think Fordham is telling us that some of the legislatures have already done so and this is why their study seems to focus on the possible plight of newer teachers vs. older teachers at THIS time, let alone the “unpredictable” future.

      • Anthony

        Insightful point!

      • Tom

        So, wait, the real threat is something that might happen, as opposed to something that is happening?

        • RedWell

          It’s both.

    • Anthony

      Thought out and well stated.

      • FriendlyGoat

        Thanks. As I tell you, I never know what the thoughts really are until I start writing. I need “down on paper (screen)” to see them and add to them.

        • Anthony

          You’re welcome but as I shared before, thoughts may not be organized prior to screen view yet framework and knowledge base gives nurturing development to what appears.

    • M Snow

      I didn’t take this opportunity to agree with the post because the situation is way more complex than one study would show. It’s a big country with many school districts and some have fair retirement systems and others, not so much. When my husband decided to return to the Army full time, it meant I would need to quit my teaching job. Since I had only worked in that district for 10 years, I wasn’t vested. They returned my 1/3 contribution to the retirement system (with no interest), but pocketed their 2/3 contribution. It was my choice, but I did think the system was unfair to anyone who was forced to quit because of an unexpected health crisis in her family.

      Couldn’t agree more about Amway and Mary Kay and all the other companies that operate as they do, but it’s a free country and no one is forced to work for them or buy their products. I fail to see how Ms. DeVos is disqualified for her job because of the source of her wealth. At any rate, it hardly matters who the Sec. of Education is. I’ve yet to see one who has accomplished anything. She will be no different. The whole department should be folded back into HHS (HEW) as a sub-cabinet position. Quick quiz: what did Arne Duncan accomplish during his years under Obama? (My daughter asked the liberal teachers at her school to answer that question. Not one could.)

      The whole pension mess is the result of years of poor actuarial work, wishful projections of investment returns and craven politicians serving those who donated to their campaigns instead the general good. We only have bad choices. We can renege on promises, starve public services for young people or raise local taxes dramatically. Pick your poison, but be aware that whichever you choose, you will hear the screams of banshees.

      • FriendlyGoat

        I was actually complimenting your balanced initial comment, as it essentially acknowledged that teachers and their unions are no more ruthless or evil than all the other political interests. As you know, most conservatives are not that kind to your cohort.

        Arne Duncan was a high-energy advocate for public education—-WHILE—-pushing hard for its improvement (uphill as that always is, as you know firsthand). Betsy DeVos is an advocate for privatized education—-generally due to the hope for more religion to be put into it. She is walking in as a multi-billionaire with no experience whatsoever in the field to “supervise” the federal rules for those who give their lives to kids for relatively modest incomes. This alone is an inappropriate slap of intended intimidation from Donald to everyone who ever worked in a public school. It’s a worse slap that she is heir to a fortune from a business which mostly made fools out of anyone who ever touched it. The schools should be teaching against multi-level sales, not celebrating its queens.

        Sorry your plan did not have you vested in something at 10 years. Some of them vest a future benefit at age 65 even after five years of service if you leave the money in. They all should——but chances now are that future changes will be tightening up against teachers, not liberalizing for their benefit.

        • M Snow

          Mr. Duncan was indeed a high energy advocate for public education. My point was it made no difference; there was no improvement in scores or school safety. Ms. DeVos will be a high energy advocate for rescuing some poor children from ghastly inner city schools. She will not succeed. If they made me queen I would change our system from state run to a completely federal one. But I’m not queen (no doubt to your relief) and education in the U.S will continue to be the province of the states. Ms. DeVos may offend the sensibilities of the teachers unions but the people who give millions to Democrats should not be surprised when the politicians they work to defeat aren’t nice to them.

          Thanks for the kind words regarding my system’s vesting rules. I have no idea how future changes will turn out but we can’t go on with the system as is. The fact that we are living longer (a good thing) means that we need to find a new way of preparing for retirement. What we are doing now is just not sustainable.

          • FriendlyGoat

            We’ve had our differences, but if you could get our education system run from the federal level instead of by the (mercurial) states, I’d agree to you being queen. That said, you know I would prefer an Obama-model federal government to the now-unfolding Trump model, of course.

          • CapitalHawk

            It doesn’t matter who is in charge of education (local, state, federal or international) and it doesn’t matter how much money you spend, assuming similar levels of effort, you will never be able to get a kid with an IQ of 90 to perform at the same level of a kid with an IQ of 110.

          • Anthony

            Something worthy of a peruse: https://www.brookings.edu/blog/fixgov/2017/02/13/ten-questions-and-answers-about-americas-big-government/

            “To oversimplify but only a little, when it comes to ‘Big Government’ Americans are philosophically conservative but behaviorally liberal. They want big government benefits and programs but they do not want to pay big government taxes and they prefer not to receive their goods and services directly from the hand of big government bureaucracies.”

          • M Snow

            Well, I won’t be going to my fitting for a crown just yet. The states would never give up their control of education. They’ll carry on about the “laboratories of democracy,” and “local needs,” but it’s really just about power. On the other hand, I do prefer to keep law enforcement at the local level as much as possible. There is just something about a giant national police department that would give me the creeps. I’m not sure what the difference between the Obama and Trump models of federalism is. Are you referring to Obama’s tolerance for sanctuary cities? Or his intolerance of Arizona trying to tighten enforcement against illegal aliens? Both of them seem to be OK with states legalizing marijuana against federal law. Or is there some other issue?

          • FriendlyGoat

            Thanks for an honest assessment of the states’ control of education. I also agree with you that we should not have national police—–especially not in this political era, to include the president not having coercive control of local LE for immigration enforcement. The sanctuary cities have their own good reasons for not diverting their forces to this task (if they so choose) and for not creating a culture of constant deportation fear in the neighborhoods they are trying to police.

            As for the differences between Obama and Trump, I see Obama as a guy who wanted to help people via government. I see Trump, so far, as a guy who wants to trick people, manage people and bully people via government. That’s my short version.

          • CapitalHawk

            Well, like it or not, the solution to the retirement savings problem is that people will end up working longer (i.e. 65 as a retirement age is going to go up). In fact, I am not eligible for full social security benefits until age 67. I expect that number to go up further and it’s going to happen for private plans too, no doubt.

          • M Snow

            How about just having a more flexible retirement age? The longer you work, the more you get. I am 69 and have some health issues. I don’t think I could have worked until 67. Perhaps our politicians could spend a little time explaining that SS and most other plans should not substitute for private savings, only supplement them.

          • CapitalHawk

            Everything you suggest would be fine with me. The politicians never seem to be interested in educating people, only persuading them, and as politics now seems to have invaded all aspects of life, logic seems to have been replaced with rhetoric everywhere as well. The two are related.

          • M Snow

            Agreed.

  • ——————————

    Pensions, unions, welfare, etc….like anything humans created to ‘help’, it becomes a bloated mess….

  • Suzy Dixon

    Public sector employees should not be allowed to unionize. And all unions have drifted so far from their original intent to make workplaces safer and have a few days off per month, etc.

  • Eurydice

    Hmmm, there’s a lot of “maybe” and “probably” here. I’ll offer another – defined contribution shifts the risk of underperformance from “the government” to the individual. Maybe it is easier to sell the concept of a specific future payout “guaranteed by the government” than that of putting one’s faith in the “fat cats of Wall Street” – never mind that pension funds are the actual fat cats.

    • FriendlyGoat

      Funny how over-performance of investments today is mostly achieved by those whose lives would not really be disrupted much by steep bear markets and under-performance is mostly reserved for those who cannot prudently “bet the farm”.

      • Eurydice

        Well, as we know, “over” and “under” are relative terms as as is “prudent”. The generally agreed upon targets in the defined contribution world are different from those in the defined benefit world. But, yes. I remember, years ago when they were talking about privatizing Social Security, asking a Treasury official how much volatility would be acceptable once every American’s pension is in the stock market. I got a blank stare then, but I supose I got the answer in 2008.

© The American Interest LLC 2005-2017 About Us Masthead Submissions Advertise Customer Service