The New York Post recently wrote about Milt Pachter, an 84-year-old man who loves his job at the Port Authority—so much that he works for free. When Pachter reached the normal retirement age, he had the choice of continuing to work or retire with a pension. Although he was not ready to retire, if he continued working, he would actually be turning down money he could receive through the pension plan. He chose to accept his pension and continue working, only now as an unpaid volunteer.
Employers can benefit from workers like Pachter with expertise and the desire to remain in the labor force. The Post quoted him saying, “I like work. I like mentoring. I have a lot of institutional memory about things I handle and want to pass on.” Pensions currently act as a crude tool, pushing veteran teachers who, like Pachter have knowledge and expertise they want to share, out of schools.
Pachter’s situation provides a personal lens into pensions. As researchers have written, traditional pension systems “push” older workers toward earlier retirement. Pensions rely on formulas that dictate how much employees can receive once they reach the “normal retirement age.” This is a blunt instrument, and it often means legislators are selecting what they think is the appropriate age for all teachers to retire. But not all teachers want to retire at the same age.
Once an employee reaches retirement age, pension benefits are disbursed as an annuity, a fixed benefit that a worker receives every year starting at retirement until death. Every year that an employee chooses to work after reaching the normal retirement age is a forgone year of pension benefits. Teachers nearing their state’s normal retirement age consistently respond to this disincentive and leave the classroom to maximize their benefits.
Many older public teachers may want to stay in the classroom, but the bluntness of pensions doesn’t take teacher preference into account. According to the Urban Institute’s pension report card, 24 state teacher plans received an F on encouraging work at older ages. This causes a problem for individual teachers, who may wish to continue working, and likewise for schools, who could benefit from the skill and expertise veteran teachers bring to the classroom. Instead, pensions create a structure that highly incentivizes workers to leave once they pass the normal retirement age, and those nearing normal retirement to continue working (“pulling” or locking teachers into the classroom despite individual choice or burnout). Yet, a teacher past normal retirement who wishes to stay may be more effective in the classroom than one who drudges on waiting to hit normal retirement.
Pensions force workers like Milt Pachter who want to continue working to make a choice between working and earning a salary or not working and earning a pension that’s worth almost as much. Instead, states should consider retirement systems that better align with worker preference, and performance, without penalty.