Teacher Pensions and Charter Schools

Chad Aldeman September 10, 2015

Teacher pension plans are poorly suited to charter schools

• Pension plans suffer from high, rising, and volatile costs

• Those costs trickle down and crowd out other spending (which

particularly harms small schools)

• Teachers pay the ultimate costs: lower base salaries and poor

retirement security

Pension costs now eat up more than $1,000 per pupil

Pension costs are not only rising, they’re also volatile

1978

-79

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1994

-95

1996

-97

1998

-99

2000

-01

2002

-03

2004

-05

2006

-07

2008

-09

2010

-11

2012

-13

2014

-15

0

5

10

15

20

25

Example: New York State Teachers' Retirement System Employer Contribution Rates (Percent of Salaries)

Above 20% in the early 1980s A low of

0.36% in the early 2000s

Rising again, it was 17.5% in 2014-15

Most of the cost increases are going toward debt, not benefits

Worse, pension plans leave the majority of teachers without secure

retirement benefits (especially charter school teachers).

Pension plans are heavily back-loaded…

25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000Teacher Pension Wealth, By Age

Age

Very little retirement savings for early- and mid-career teachers

Pension wealth spikes

Pension wealth de-clines

But the teaching workforce has become more mobile…

0 4 8 12 16 20 24 28 32 36 40

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Mode: 15 years

1987-88

0 4 8 12 16 20 24 28 32 36 40

2007-08

Teacher experience as share of workforce

And the *charter* teaching workforce is even more mobile…

0-5 6-10 11-15 16-20 21-25 26-30 30+0%

10%

20%

30%

40%

50%

60%

Teacher Experience Levels By Sector

Charter schools Tradititional public school

Years of Experince

The end result: The vast majority of teachers will fail to qualify for secure retirement benefits

Most states require 5 years of service for a teacher to qualify for a pension. 17 states require 10 years.

Long vesting requirements

Minimal benefits for mid-career teachers

Portability penalties

In the median state, teachers must wait 25 years before their pension is worth more than their own contributions and interest.

A 30-year teacher who splits her career between two states can lose more than half her pension wealth.

These limitations make Social Security critical for teachers

Benefits of Social Security to workers

Portable

Inflation-protected

Progressive benefit formula

Low risk

Lasts a lifetime

Social Security covers 160 million American workers (over 95% of

all workers)

Over 6.5 million government

workers, including 1.2 million teachers, remain uncovered

But many states have chosen not to offer teachers Social Security benefits

Nationwide, 40% of public school teachers are not

covered by Social Security

How can policymakers fix these problems?

At minimum, states could give teachers choice over their retirement plan

• There are multiple ways to provide simple, transparent retirement

benefits

• Any type of retirement plan can incorporate important protections

for workers:

• Adequate savings and benefit accrual rates.

• Professionally managed, low-fee investments.

• Annuities upon retirement.

For example, a cost-neutral cash balance plan would benefit most teachers

25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

0

0.2

0.4

0.6

0.8

1

Example from Louisiana: Cash balance plan (green) versus the current pension plan (red)

A very small minority would be worse off.

Percentage of teach-ers remaining

How can I learn more about this issue?

For more information, visit:

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