Teachers, no matter how new, shouldn’t need a side hustle to make ends meet. But, conservatively (and without including summer work), 16 percent do. One solution? Pension reform. Right now, states pay, on average, $6,800 per teacher toward pension debt. These payments aren’t going to future benefits, but instead to pay down existing debts.
In a country were 76 percent of teachers are women, we’d expect to see females as lead earners in a state’s public school system. But that isn’t the case, and that same gender wage gap extends into retirement.
All teachers deserve a secure retirement. But under today’s current teacher retirement savings plans, more than half of all new educators won’t qualify for even a minimal pension benefit. We took a state-by-state look at public teacher retirement plans, and the findings were dismal.
Giving teachers a say over their retirement plan just might be good for everyone.
The majority of states enroll their public school teachers in defined benefit (DB) pension plans. These plans are back-loaded, and they mainly benefit the small portion of teachers who remain both in the classroom and in the same state for 20 years or more. Supporters of these plans argue pensions are a retention tool – teachers might be less likely to leave the profession if there’s a large financial incentive waiting for them if they stay. These advocates rarely acknowledge that this idea suggests it's ok to use someone's retirement security as a tool to shape their behavior, but it's worth investigating whether these claims play out in pratice. That is, does a teacher's retirement plan shape her behavior?
My colleague Chad Aldeman has a forthcoming piece on this question in Education Next, but a recent study published by the National Center for Analysis of Longitudinal Data in Education Research (CALDER) provides some initial answers. The study, authored by Dan Goldhaber, Cyrus Grout, and Kristian Holden, looked at what happened when Washington State switched from a pure DB system to a hybrid plan. Hybrid plans combine aspects from portable, defined contribution (DC) models, like 401(k)s, as well as traditional, defined benefit plans, like most pensions. Here’s how it worked:
Washington introduced their current hybrid plan (called TRS3) in 1995, to replace their existing DB plan (TRS2). At the time, existing employees remained in the original DB plan, while new hires were enrolled in the new hybrid plan. A two-year transfer period allowed teachers in the DB plan the option to switch into the hybrid plan – those who did so received a bonus payment equal to 65% of their accrued TRS2 contributions.
In 2007, Washington made changes again. Teachers hired after that point can select either the DB plan or the hybrid plan, with the latter as the default option for those who do not make an affirmative selection. The table below shows the differences between the two plans: