About Teacher Pensions

Teacher pensions are emerging as a focus of many state and local policymakers as the gap between what states have saved for teacher pensions and what they have promised to pay retirees totals almost $500 billion. Teacher pensions are one important part of the more than $1 trillion shortfall states face for public sector pensions and benefits such as retiree health care today. Meanwhile, with Americans living longer and teachers more likely to retire at a younger age, the challenge of financing teacher retirements is only increasing.

But while teacher pensions receive a lot of attention for their financial problems, the issues are more complicated. Current teacher retirement systems are often designed in ways that systematically disadvantage young and mobile teachers and impair the ability of schools to recruit, hire, retain, and compensate high-quality teachers. This may work well for the minority of teachers who qualify for full benefits—but not necessarily for most teachers, students, school districts, or the public interest.

Today’s systems shortchange the vast number of teachers who change jobs and teach in a different state or a school district covered by a different pension plan, as well as those who leave teaching to work in another sector. When it comes to retirement planning and security teachers are being systematically disadvantaged in the early years of their careers, a critical time to start building retirement savings.

In most places, the current problems took years to manifest. Poor investment returns, ill-considered benefit enhancements, and lack of fiscal discipline by state policymakers about employer contributions all contributed to the current funding status. In recent years, states have taken steps to shore up the financial aspects of plans while making the benefits worse. Giving teachers worse benefits is cheaper, but it is not a good long-term solution. Plans may look like they are in good shape financially and pundits will cheer, but teachers will actually be worse off.

Given the enormity of the American education system, this is a problem not just for individual teachers but also for the entire nation. With 3.3 million active public school teachers, teaching is by far the largest profession of college-educated workers. It is bad public policy to leave a class of adults as large as teachers with poor retirement security.