Blog: Alternative Models

State politicians created large pension debts, and it's unfair to ask school districts, especially charter schools, to bear the budgetary burden of those costs.
Breaking down the options for states facing large unfunded pension liabilities.
A recent study found that nearly two-thirds of California teachers will be pension "losers."
A new organization called the Retirement Security Initiaitve (RSI) is trying to help state and local governments improve their pension systems.
Saving for retirement is hard enough, but states are forcing teachers into complex decisions about how much their pension might be worth in the future. Data from Illinois suggests many teachers are struggling with those decisions.
The majority of teacher pension plans actually incentivize employees to exit at a predetermined age, quietly penalizing those who continue to work. This deters experienced educators from continuing in the classroom, and recent data suggests it may have negative effects on students, too.
There's a common, widespread belief that the corporate shift from defined benefit pension plans to defined contribution 401k plans harmed retirement savings. This is a myth.
The majority of California's teachers would be better off in a cash balance plan than the state’s current pension plan.
Pension plans failed to meet investment targets last year. What will that mean going forward?

Roughly half of American private sector workers don’t have a retirement savings plan at their jobs.  But it’s not by choice.  Eighty-four percent of these workers don’t have access to plans.  

And educators aren’t immune.  Only one-fifth of early childhood teachers have a retirement plan, according to the National Child Care Staffing Study. Unlike most elementary and secondary teachers, many early childhood teachers aren’t public workers and aren’t eligible to participate in their state’s teacher pension plan. (They also earn significantly less in salary.)   

The federal government now offers a low-cost retirement option called, my retirement account or myRA.  There’s no minimum amount and workers who don’t have a 401k or pension plan can set-up automatic deductions from their paycheck into a myRA account.  Once in the account, the savings are invested in bonds backed by the U.S. Treasury.  While this won’t yield high investment returns, it is a safe bet and has no fees.  

One drawback, however, is that workers have to choose to sign up for myRA on their own initiative.  And Americans aren’t very good at saving.  Yet, empirical research, shows that automatically enrolling or nudging employees into a plan (while still allowing them to opt out) is a much more effective way to boost participation.