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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