Imagine not getting any retirement benefits from your employer after working for almost a decade. Or having to wait 25 years before your retirement savings are finally worth at least your own contributions plus interest.
Yes, it’s April Fools’ Day. But no, this isn’t a gag. This actually happens to teachers across the country.Current pension plans disadvantage early- and mid-career teachers. In most states, this includes all teachers who stay less than 25 or 30 years in a single system. Over half of new teachers won’t meet the minimum vesting or service requirements to qualify for any pension, according to state pension plans’ own assumptions. Even for mid-career teachers who remain in the classroom for longer, but don't retire right away, the median state requires teachers to work for 24 years before receiving a positive return or come out ahead on the value of their employee contributions and interest. To make matters worse, in 15 states, teachers don’t qualify for Social Security for their time in the classroom, further exacerbating their retirement uncertainty.In response to the 2007-9 recession, states are now placing even more obstacles before teachers. Twelve states increased their minimum service requirements, making it more difficult for new teachers to qualify for a minimum benefit. Employee contribution rates and the normal retirement age are rising, making it less likely that a new teacher will get a pension worth more than her own contributions plus interest.Unfortunately, states and local plans have played these tricks on too many teachers for too long. It’s time for states to stop fooling around with teacher retirement security and provide adequate benefits for all 3 million of them.
A couple weeks ago I joined a panel hosted by the Albert Shanker Institute and the American Federation of Teachers on the question of, "Is There a Pension Crisis?" I was joined on the panel by Teresa Ghilarducci, the Bernard L. and Irene Schwartz Chair in Economic Policy Analysis and director of the Schwartz Center for Economic Policy Analysis at The New School; David Cay Johnston, a professor of business, tax, and property law at Syracuse University College of Law and a former New York Times Pulitzer Prize-winning investigative reporter; and Dan Pedrotty, the manager for research and strategic initiatives department at the American Federation of Teachers.
My basic message was that a "crisis" is in the eye of the beholder, but teachers are paying the ultimate costs of our current system through lower base salaries and poor retirement security. I've uploaded a video of my presentation below:
To watch all all of the presentations and the Q and A or to download our PowerPoint files, please visit the Shanker Institute event page.
Recently, the Chicago Tribune reported a story on a union lobbyist suing over recent pension benefit cuts. The catch? He only taught for one day as a substitute teacher in order to exploit a loophole in state law.
Under an obscure 2007 Illinois law, passed under former Governor Rod Blagojevich (yes, the one who was convicted and removed from office), union officials could participate in the Illinois Teachers’ Retirement System by teaching for a single day. Moreover, they could count their time with the Illinois Federation of Teachers toward a teacher pension. In response, two teacher union lobbyists, David Piccioli and Steven Preckwinkle each taught for a single day in Springfield, Illinois schools. (Who knows what, if anything, the two lobbyists taught their students in those two days.)
A one-day service requirement stands in sharp contrast to the 10 year minimum service requirement that Illinois legislators adopted for teachers in 2011. Any teacher hired on or after 2011 must serve 10 years in order to qualify for a minimum pension benefit. A teacher who teaches for 9 years just falls short, earning neither pension benefits nor Social Security for her time in the classroom. Heightening the absurdity, the lobbyists made substantively more in salary, the Tribune reported six figures each, than a typical public school teacher. And because pension formulas hinge on service time and final average salary, a higher salary will dramatically boost the pension benefit.
Later laws have since revoked the provision allowing union employee service credit to count toward a teacher pension. But both lobbyists have remained in the state teacher pension system, and Piccioli is now suing for his benefits.
In fact, if Piccioli wins, the state will be on the hook for paying even more in his retirement benefits for years, all for a single day of probably not great teaching. None of this is in the interest of schools, teachers, or students, and it stands in stark contrast to how the state is treating its full-time teachers.
If you’re not a public employee, it’s easy to brush away pensions as matter only for state lawmakers and affected workers. But it should be a national priority to ensure that all state and local government workers, especially teachers, have adequate retirement savings.
Even beyond the important role that teachers play in student lives and in the fabric of communities, there are simply a lot of them. Nationwide, there are 3.3 million public school teachers. Public school teachers are one of the largest professions in the U.S., and the largest class of workers with a college degree or higher. There are more public school teachers than lawyers, doctors, and retail salespersons, and there are as many teachers as nurses and social workers combined.
Source: Chad Aldeman and Andrew Rotherham, “Friends without Benefits,” Bellwether Education Partners, 2014. National Center for Education Statistics, “Fast Facts.” U.S. Bureau of Labor Statistics, “Employment and Earnings Online.” Diminish
And yet, current policies curtail the retirement security of this major class of workers. Current retirement systems don’t serve the majority of teachers, setting all-or-nothing service requirements of five or 10 years and offering minimal benefits during the first 20 years of service. In the median state, teachers need to work for a minimum of 24 years before their lifetime pension benefits are worth more than their own contributions plus interest.
On top of these equity issues, traditional pensions come at an expensive price. Tied to the teaching workforce is massive pension debt: Collectively, teacher pension debt accounts for $500 billion of all state pension debt. For every dollar states and local school districts are contributing to teacher pension plans, an average of $.70 goes toward paying down pension debt. Massive pension debt crowds out other education funding, and in some cities, has forced reductions in crucial, basic public services, or caused large tax increases.
Rather than continuing a system that inequitably and inefficiently distributes benefits, states need to consider ways to provide affordable retirement benefits that will put all teachers on a path to retirement security. Because what would be good for this large, important group of workers, would also benefit the rest of our nation.
State and local governments around the country are waiting to see how the Illinois Supreme Court will rule on a contested pension reform law. We've previously posted a video by Sal Khan, the founder of Khan Academy, explaining pension obligations. Given the recent interest in Illinois' state pension plans, it's worth your time to watch this video explaining how Illinois became one of the worst funded states in the nation and the consequences for the state's education funding:
- Everyone probably knows a teacher—whether a friend, family member, neighbor, or colleague—who’s waiting for the right year to retire. Most late-career teachers know they have a “magic year” they need to reach in order to receive optimal retirement benefits. This typically happens between ages 55 to 60, or after 30 plus years in the classroom, depending on the plan and when the teacher began teaching.But once teachers reach that special year, they know they need to get out. Otherwise, every year they don’t is a year they give up in retirement benefits. Even though staying beyond the set retirement year oftentimes means a bigger retirement check, because pensions are guaranteed over a lifetime, working when you could be retired means less checks to collect over a lifetime. And so working longer than needed still means giving up a substantial amount of money.Rather than discouraging work at older ages, states could enact policies that encourage workers to continue working for longer. An effective teacher who reaches her “magic year” of retirement doesn’t suddenly become ineffective upon reaching that year. Teachers who perform well and want to teach beyond the prescribed plan retirement age shouldn’t be punished. The teaching workforce could greatly benefit from the insights of veteran teachers or second-career teachers who switched to teaching at relatively older ages.For more on the “magic year” and how it impacts the teachers, read my new piece on RealClearEducation.