Why Education Advocates Should Invest in

Pension Reform

Chad Aldeman

As an education advocate, your

work is driven by improving

outcomes for kids. Current teacher

pension plans are working against

that goal.

Why pensions and not… Common Core? Charter schools?

Teacher prep?

• Pensions are a cost barrier to everything else you want to do

• Pensions are bad for:

• All new teachers (because of legacy costs)

• Teachers who work less than a full career (25 or 30 years)

• Any group of teachers with high turnover (charters, some

subjects, certain geographic areas)

• Pension reform poses fewer implementation challenges than other

policies (e.g. teacher evals or Common Core)

• Reform would be good for teachers, schools, and taxpayers

First, you’re all feeling this in your state: Defined benefit

pension costs are high and volatile

0

5

10

15

20

25

1978-79 1983-84 1988-89 1993-94 1998-99 2003-04 2008-09 2013-14

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

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

money can’t be spent on other things (e.g. teacher salaries)

Most of the cost increases are going toward paying off

pension debt, not actual benefits for teachers

The Multiplier

(2 percent)

Salary

($50,000)

Years of Experience

(25 years)

Annual Benefit

($25,000)

Worse, pensions are contributing to inequities, because

teachers themselves are inequitably distributed

• Teachers are inequitably distributed according to almost every

variable—experience, salary, etc.

• Pension formulas rely on these same components. They literally

multiply those factors together, like this:

• So, while all districts share the costs of pensions, the benefits

mainly accrue to places with more higher-paid, veteran teachers

Moreover, pension plans don’t serve most teachers well

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

25 30 35 40 45 50 55 60 65 70 75Age

Teacher Pension Wealth, By Age

Very little retirement

savings for early-

and mid-career

Pension

wealth

spikes

Pension

wealth

declines

Back-loaded pension plan structures don’t match the

teaching workforce

0

0.2

0.4

0.6

0.8

1

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

25 30 35 40 45 50 55 60 65 70 75

Age

Teacher Retention Versus Pension Wealth

Percentage of

Teachers

Remaining

Pension Wealth

Most teachers would be better off in a more portable

retirement plan

What can education advocates do

to fix these problems?

Be the voice in your state advocating for solutions that

address both the financial AND human capital problems

• There’s no magic solution to paying off existing debts, but states

should strive to:

• Share the debt burden as widely as possible, it’s not just the

responsibility of teachers or schools

• Find a dedicated revenue stream

• At the same time, states should stop making the hole bigger:

• ALL teachers deserve a path to a secure retirement

• Social Security should be part of the solution (teachers in 15

states don’t participate)

Help your state stop making the pension problems worse

• Give your teachers a choice (given rapid teacher turnover, the

default should be a portable plan)

• There are multiple ways to provide simple, transparent retirement

benefits that incorporate protections for teachers:

• “Nudge” teachers toward adequate savings habits

• Ensure plans are professionally managed with low fees

• Utilize annuities to provide teachers with help drawing down

assets in retirement

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