Teachers Are Best Served by Traditional Pensions

11/01/2017 10:04 am ET

The first public pension plan for teachers was established in Manhattan in 1894. In the 1910s, six states established teacher pension plans. More states followed suit and now the overwhelming majority of public school teachers in the United States participate in traditional defined benefit pension plans. These plans have successfully provided a secure and reliable retirement for teachers for decades. Despite their record of success, however, teacher pension plans are under attack nationwide.

Anti-pension ideologues use shifting arguments to attack teacher pensions, but one of the most common arguments is that public pensions do not benefit most teachers. The misleading argument goes that pension benefits are back-loaded and only truly benefit a small number of career teachers. Several new research papers thoroughly debunk this pervasive myth.

A new report from the Economic Policy Institute (EPI) confronts this myth directly. Building upon work by previous researchers, EPI’s report argues that pension critics are using inaccurate data. Teaching is a profession that experiences a fair amount of churn in the early years. A decent number of people teach for a few years and then realize that teaching isn’t for them and leave to pursue other career interests. In California, for example, four out of ten new teachers will leave teaching before the end of their fifth year. Among those who teach for at least five years, the vast majority (72 percent) will teach for thirty years or more. Pension critics, however, will often give as much weight to short-term, early career teachers as they do to long-term, full career teachers. This skews the data and makes pensions seem less beneficial to teachers overall.

The EPI report also finds that short-term teachers benefit more from pensions than critics usually admit. Teachers contribute a portion of their salary toward their pension benefit. Their employer, usually the school district, also contributes toward their pension. Typically there is a vesting period of around five years before the teacher is entitled to the employer contribution. If the teacher leaves before vesting, they do not receive the employer contribution. However, the teacher can receive a refund of their own contributions, usually with interest. This is as good or better of a deal than they would have received in the private sector. Many private sector businesses also have vesting periods, even for 401(k) plans, which are much less generous than pension plans. Furthermore, hardly anyone in the private sector would receive their own contributions with guaranteed interest when they leave. Pension critics are being misleading when they say that short-term, non-vested teachers get nothing from public pensions.

The National Institute on Retirement Security (NIRS) released a report just last week that agrees with the findings of the EPI report. Dr. Christian Weller argues in this report that pensions serve the needs of schools by promoting recruitment and retention. They do this by providing a strong economic incentive for teachers to remain on the job. Retaining experienced and effective teachers improves the quality of schools overall, which is best for students.

The fact of the matter is teachers want pensions. NIRS recently updated their report titled Decisions, Decisions. This report focuses on the choices that teachers and other public employees make in eight states where they have a choice between a pension plan and an alternative retirement plan. It’s not even close. Public employees overwhelmingly choose pensions in these states. In the Ohio State Teachers Retirement System, 89 percent chose the pension. In Colorado PERA, 88 percent did. Even in Washington State, which offers an unusually generous hybrid retirement plan, the number of teachers actively choosing the traditional pension has increased each year.

My organization, the National Public Pension Coalition, recently released a report examining retirement security for charter school teachers. In twenty states, public charter schools can choose whether to participate in the public pension plan for teachers or offer an alternative retirement plan. Looking at eight of these twenty states, I found that participation levels varied widely. In California, 89 percent of charter schools participated in a public pension plan; in Florida and Michigan, only 12 percent did. These choices have real consequences for charter school teachers.

I compared the benefits a hypothetical charter school teacher could receive from a public pension plan with those she could receive from an alternative retirement plan. In all states studied, a charter teacher would be better off with a defined benefit pension than with a 401(k)-style, defined contribution plan. This is consistent with the conclusions from other reports, including one from California that found 86 percent of California teachers are better served with a CalSTRS pension than an idealized 401(k)-style plan.

There is a reason states have offered pensions to teachers for the past hundred years: pensions are effective. Defined benefit pensions provide a secure and reliable retirement for public school teachers. Pensions also help local schools attract and retain qualified, effective teachers. Don’t let the critics mislead you: teachers want pensions and the overwhelming majority of teachers will benefit greatly from them.

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