Teacher Pensions Blog

Fifteen states penalize teachers by not providing Social Security coverage. Seventeen states require teachers to serve at least ten years for a pension. But four states have decided to link these two regressive policies together. Connecticut, Georgia, Illinois, and Massachusetts don't offer Social Security to their teachers and make them wait 10 years to earn even a minimum pension.

Unlike the private sector, states can set the service requirements for a pension as high as they want. Some states have set relatively long service requirements. Failing to meet these service requirements (also called vesting) means a teacher won’t qualify for any benefits at retirement. Connecticut, Georgia, and Massachusetts have for the past several decades required their teachers to serve a minimum of 10 years before offering any benefits at retirement. Illinois recently joined the group by increasing their service requirement from five years to 10.

What does this mean for these teachers? Teachers in these states can teach for up to 9 years without earning any employer-provided benefits. They won’t meet requirements to qualify for a pension. And they also won’t have Social Security to fall back on, because neither they nor their employers contribute to the federal program.

The chart below shows the percentage of new teachers the state assumes will actually qualify for a pension and teach until the plan’s set retirement age.

Teachers in These 4 States Lose Out on Pension Benefits AND Social Security*

Source: State comprehensive annual financial reports and teacher retirement plans.

The percentage of these “double losers” is shockingly high. In Massachusetts, only 36 percent of all new teachers will meet the minimum requirements to receive a pension. This means that 64 percent of the state’s new teachers won’t get any pension benefits at retirement. And they won’t receive any Social Security benefits. In Illinois, 6 out of 10 new teachers also lose out on pensions and Social Security.

These double losers don’t exist in the private sector. Unlike the public sector, all private sector employers must provide their workers with Social Security benefits. While not all private companies provide their workers with a retirement plan, those that do cannot set service requirements above five years. These states may be cutting corners and saving in the short-term, but their new teachers are paying the ultimate cost.

*Up until 2013, Rhode Island set their service requirements for a pension at 10 years while not offering their teachers Social Security. In 2013, Rhode Island passed legislation that placed new teachers in a hybrid plan with a lower service requirement of 5 years for the defined benefit portion of the plan and 3 years for the defined contribution portion of the plan. While a historic step, Rhode Island could go one step further and offer Social Security to all of their teachers.

Reasonable people can disagree about pension policy. It’s a complicated issue with tradeoffs that are both politically and substantively tricky. But the issue is too important to millions of teachers to let the usual “say anything” approach to education policy issues cloud the debate. That’s why it’s worth unpacking an op-ed by the National Public Pension Coalition’s Bailey Childers responding to our recent studies on teacher pensions. From start to finish her piece is half-truths, sleight of hand, and mud-slinging.  We have to do better.

The piece is entitled, “Why Is An Enron Billionaire Trying To Keep Teachers From Retiring?” That’s a bad sign right there. Presumably she’s referencing John Arnold, whose foundation supports pension reform, along with criminal justice reform, evidence-based policymaking, and other issues. (I guess “Why Is An Enron Billionaire Trying To Make Sure Fewer Innocent People Go To Prison?” doesn’t pack the same emotional punch.) In any event,  Arnold did work at Enron, but he not only got a clean bill of health from his time there, prosecutors actually recommended that he testify before Congress on financial integrity issues. I don’t much care for the Enron saga, either, but it’s irrelevant. Arnold actually made his billions elsewhere – he ran a successful hedge fund before retiring. Perhaps John Arnold is wrong on pensions, or wrong to support our work on the issue, but that has nothing to do with Enron.

Childers then writes:

I remember the first time I had to grapple with death as a young child. A teacher, understanding the pain I was going through, gave me a copy of The Giving Tree to help me learn how to process love and loss in life. To this day it remains one of my favorite books and a heartwarming reminder of how teachers are so much more than just teachers. They leave a mark on our lives. Whether your teacher made a difficult concept click, a formula stick, or your heart tick with a new passion, there's no denying teachers' essential role in a functioning and enterprising society. That's why it's so important to create an environment that enables the best educators to enter and stay in the field.

As even a quick look at our work shows, we agree on this! Teachers are the largest class of college-educated workers, and, with more than 3 million public school teachers, their retirement security is important not just to individual teachers but to all of us. That's why the current system, which results in only one in five teachers earning a full pension and fewer than half earning any pension at all is a big problem. You read that right, Childers is fighting against reforming a system that right now only really works for one-in-five teachers, and arguably not even that well for those teachers.

For generations, defined benefit pensions have been a key component of compensation packages intended to attract and keep the most talented teachers in our public schools. For the teachers who love the job, these plans have delivered modest but reliable retirement income and the job retention incentive has provided stability to classrooms across the nation. Considering the enormous responsibility teachers bear, it's a solid and necessary investment. But now, anti-pension ideologues behind a concerted effort to diminish retirement security for all public workers have tried to spread misinformation about retirement systems for teachers. No one should buy into these misleading claims.

This is a nice idea but unfortunately Childers is wrong about pensions as a retention incentive. Pensions do have an effect on the small group of workers very close to retirement, that shows up clearly in the data and those incentives are good and bad. For instance pension policies create incentives for good teachers to retire from teaching even when they could continue to do great work for many more years. But academic researchers have been unable to find much effect for other groups of workers, including the majority who leave the profession before qualifying for sufficient retirement benefits. Unfortunately, the evidence shows that early-career workers are generally insensitive to retirement benefits – a problem in today’s do-it-yourself retirement environment.

Two organizations, Bellwether Education Partners and the Urban Institute, both funded by Enron-billionaire John Arnold's foundation, recently put out two separate reports that they say point to a fault in teachers' retirement savings systems nationwide. Neither report has gotten a lot of traction because they are chock full of conflations and straight up lies. The report authors misrepresent the basics of a pension system to make a disingenuous argument that young teachers are paying for benefits for older and retired teachers that they will never see themselves. They punctuate their point with unrealistically high teacher turnover rates that lack citation.

Just judge the two reports for yourself.  But we take a different methodology than Childers in that we rely on actual data to make our arguments. As we document in the briefs, our findings are based on each state’s actuarial calculations that they use to estimate their own future liabilities. If Childers takes issue that only about half of all new teachers will qualify for any pension at all, and less than one-in-five will stick around long enough to qualify for a decent retirement, she should take it up with her coalition’s members. 

The release of the reports is a desperate attempt to pit young teachers against those who are further into their careers, and then strip all teachers of their retirement security. We would all be better off if the reports focused on actually improving teacher pay and increasing support for new teachers rather than distorting the facts to build a case for risky 401(k)-style plans.

Unlike Childers, we think ALL teachers deserve a path to a decent retirement, not one that privileges a small minority. Unfortunately, pension advocates like Childers have been so intent on preserving the structure of traditional pension plans that they’ve been willing to compromise on dramatic cuts for new workers. As we found in another paper, in terms of retirement benefits, now is the worst time in 30 years to become a teacher. We don’t think that’s good for the profession as a whole, and it’s certainly not good for those workers. As our other work shows we also think there are variety of ways to reform pensions and the 401k versus pensions argument is a phony choice.

401(k)-style, or defined contribution plans, are a bad deal for both taxpayers and teachers. Research shows that it costs almost twice as much to provide a worker with the same level of benefits using a 401(k) than it does with a defined benefit plan. In fact, 401(k)-style plans primarily benefit Wall Street bankers, who take much higher fees for themselves.

There’s no magic behind pension plan investments: They carry some of the same costs and fees as other investments. And a recent analysis found that pension plans are no more efficient than the average defined contribution plan. In fact, private-sector retirement plans have dramatically cut costs over the years as they’ve expanded offerings of low-fee index funds and life-cycle funds. At the same time, public-sector pensions have piled into “alternative” investments in private equity, often with high and obscure fee arrangements.

It may be convenient for Childers to paint with a broad brush, but we’re not ideologues on what alternative plans might look like – nor are most serious analysts doing work on these issues. We’ve championed hybrid plans from Washington State and the federal government; we’ve argued that all teachers should be covered by Social Security (a protection Childers’ organization won’t endorse, which is one reason 40 percent of teachers are not covered by our nation’s most successful social insurance program while they are teaching); and we think an alternative structure called “cash balance” plans could provide a more stable, secure retirement path for all teachers. Our focus is on ensuring that all workers are enrolled in a plan that helps put them on a path toward retirement security, no matter where life takes them.

While it's true that some teacher retirement systems are still recovering--retirement systems across the board took a hard hit during the Great Recession--the bulk of them are in good standing. The Wisconsin Retirement System, for example, is fully funded and has been for more than 10 years. North Carolina's teacher pensions are funded at 95 percent. New York's are funded at 93 percent. And the Center for Retirement Research at Boston College recently projected that public pension systems nationwide will reach an average funding level of 80.5 percent by 2018.

We’ve made the exact same point ourselves. It’s misleading to paint the fiscal solvency of state pension funds with a broad brush. Unfortunately, Childers, who should be a champion of workers, is talking about the financial health of the pension plans writ large. As I’ve written, pension plans can be well-funded but still provide stingy benefits for workers. New York, for example, is relatively well-funded but it requires new teachers to wait 10 years before qualifying for any pension benefit. A ten-year vesting period would be illegal in the private sector and it harms workers. Based on the state’s data we estimate that only  40 percent of New York teachers will actually earn a pension from their well-funded pension plan.

Instead of so-called reforms that would decimate teachers' retirement savings, we should be looking for ways to keep good teachers in the classroom. Retirement security is a critical part of making teaching a more rewarding career, and traditional pensions are simply the best and most cost-efficient tool available to provide it.

Again, we agree. Retention of good teachers must be a policy priority. But pensions are an ineffectual and inefficient way to accomplish this goal. So while it’s a great talking point in practice the actual policy challenges of pensions work at cross-purposes with that goal. Pensions face a political problem of getting politicians to pay for their promises and this leads large pension debts that make state budgets unstable. In turn, that volatility trickles down to schools in the form of rising and unpredictable pension costs. None of this helps retain (or reward) good teachers.

By pooling and professionally managing retirement assets, teachers and taxpayers benefit from a more economically efficient system where retirees can continue to receive the same level of benefits whether the markets are in a boom or bust period. All said, defined benefit plans yield the best returns in the long term and offer the financial security and peace of mind that we can all agree our teachers deserve.

It’s true that pensions protect workers from boom or bust periods, but pensions carry their own risk. In the median state, teachers must wait 25 years before their pension is finally worth more than their own contributions plus interest. Their risk is that life will get in the way, and they won’t stick around long enough to reap the rewards of the pension promise.

The claims of the many so-called free market advocates simply don't add up. You can't credibly claim that markets work, that good teachers lead to good educational outcomes, and then propose cutting pay and benefits. But that is the argument they make over and over again.

Another good talking point at odds with the reality. For our part, you won’t find a mention of “free markets” in our pension work. Our work is animated by today’s poorly structured pension plans that work at cross purposes with the larger goals of our education system and the challenges of providing a secure retirement for millions of Americans. In fact, schools could offer better benefits and higher salaries if we responsibly dealt with how to pay off existing pension debt and obligations rather than putting it on the backs of new teachers.

What these two reports really show is that John Arnold and his surrogates will do anything to propel their misguided efforts to undermine working peoples' futures, even going after those, like teachers, who dedicate their lives to making a difference in our communities.

John Arnold can speak for himself. For our part, we just think teachers deserve a lot better than this. Especially from people purporting to represent their interests.