Pensions without benefits

See all posts
The house-of-cards financial status of many states' teacher retirement systems is keeping teacher pensions on the legislative agenda.  In an article from the AP that draws on data from our 2011 State Teacher Policy Yearbook, examining the growing crisis, the National Education Association says that pension reform is an emotional issue for teachers.  But it is time to face the cold, hard facts:  pension systems in 35 states (and counting) are underfunded and unsustainable.  And to make matters worse, the typical state teacher pension system is inflexible and unfair—all in all, not very beneficial to teachers.

How can states avoid spiraling pension costs, teacher layoffs, tax increases, and financial collapse while building a compensation strategy that will be attractive to the next generation of teachers? A full set of recommendations are outlined in the Yearbook, but for starters, states should:

  • Move away from costly and inflexible defined benefit plans that promise to pay a specific amount to each person who retires after a set number of years (and where often all contributions are made by states and districts) and at least offer teachers the option of defined contribution plans.
  • Base retirement eligibility on age, not years of service.  This does not mean that all teachers should receive the same benefits regardless of how long they have worked, merely that eligibility should be determined in a way that treats all teachers equitably.  Further, retirement ages should be similar to what is found in other professions (retirement age is under 60 in 36 states), and benefits should be reduced if early retirement is permitted.   

Just last week, New York—a fully funded pension system being crushed under the weight of a reported 650% increase in pension costs since 2002—passed pension reform legislation that includes not only adjustments to retirement ages and formulas, but options and flexibilities, such as offering 401(k) plans.

There are many ways teachers get a raw deal under current state pension systems. For example, 16 states make teachers wait 10 years to vest in state retirement systems—way too long to make talented and skilled teachers with other employment opportunities wait.  Pension reform means not just shoring up the financial health of these systems, but making them portable, flexible and fair.  Then the benefits will really accrue.

-Sandi Jacobs