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Why Education Advocates Should Invest in Pension Reform

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Current teacher pension plans are working against the goal of improving educational outcomes for kids.

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Why Education Advocates Should Invest in Pension Reform

  1. 1. Why Education Advocates Should Invest in Pension Reform Chad Aldeman
  2. 2. As an education advocate, your work is driven by improving outcomes for kids. Current teacher pension plans are working against that goal.
  3. 3. Why pensions and not… Common Core? Charter schools? Teacher prep? • Pensions are a cost barrier to everything else you want to do • Pensions are bad for: • All new teachers (because of legacy costs) • Teachers who work less than a full career (25 or 30 years) • Any group of teachers with high turnover (charters, some subjects, certain geographic areas) • Pension reform poses fewer implementation challenges than other policies (e.g. teacher evals or Common Core) • Reform would be good for teachers, schools, and taxpayers
  4. 4. First, you’re all feeling this in your state: Defined benefit pension costs are high and volatile 0 5 10 15 20 25 1978-79 1983-84 1988-89 1993-94 1998-99 2003-04 2008-09 2013-14 Example: New York State Teachers' Retirement System Employer Contribution Rates (Percent of Salaries) Above 20% in the early 1980s A low of 0.36% in the early 2000s Rising again, it was 17.5% in 2014-15
  5. 5. Pension costs now eat up more than $1,000 per pupil. That money can’t be spent on other things (e.g. teacher salaries)
  6. 6. Most of the cost increases are going toward paying off pension debt, not actual benefits for teachers
  7. 7. The Multiplier (2 percent) Salary ($50,000) Years of Experience (25 years) Annual Benefit ($25,000) Worse, pensions are contributing to inequities, because teachers themselves are inequitably distributed • Teachers are inequitably distributed according to almost every variable—experience, salary, etc. • Pension formulas rely on these same components. They literally multiply those factors together, like this: • So, while all districts share the costs of pensions, the benefits mainly accrue to places with more higher-paid, veteran teachers
  8. 8. Moreover, pension plans don’t serve most teachers well $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 25 30 35 40 45 50 55 60 65 70 75 Age Teacher Pension Wealth, By Age Very little retirement savings for early- and mid-career Pension wealth spikes Pension wealth declines
  9. 9. Back-loaded pension plan structures don’t match the teaching workforce 0 0.2 0.4 0.6 0.8 1 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 25 30 35 40 45 50 55 60 65 70 75 Age Teacher Retention Versus Pension Wealth Percentage of Teachers Remaining Pension Wealth
  10. 10. Most teachers would be better off in a more portable retirement plan
  11. 11. What can education advocates do to fix these problems?
  12. 12. Be the voice in your state advocating for solutions that address both the financial AND human capital problems • There’s no magic solution to paying off existing debts, but states should strive to: • Share the debt burden as widely as possible, it’s not just the responsibility of teachers or schools • Find a dedicated revenue stream • At the same time, states should stop making the hole bigger: • ALL teachers deserve a path to a secure retirement • Social Security should be part of the solution (teachers in 15 states don’t participate)
  13. 13. Help your state stop making the pension problems worse • Give your teachers a choice (given rapid teacher turnover, the default should be a portable plan) • There are multiple ways to provide simple, transparent retirement benefits that incorporate protections for teachers: • “Nudge” teachers toward adequate savings habits • Ensure plans are professionally managed with low fees • Utilize annuities to provide teachers with help drawing down assets in retirement
  14. 14. For more information, visit: Follow us on Twitter @TeacherPension

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