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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