Blog: Funding

In a new report, we studied Illinois’ educator salary and tenure data, and found that women typically earn salaries that are $5,500 lower than their male colleagues. This pay gap continues into retirement, leaving women with lower annual benefits even if they worked the same number of years.
While West Virginia lands in the bottom 5 states in terms of teacher salaries, it climbs to 32nd in terms of salary plus retirement costs.
Illinois Governor Rauner proposes to shift teacher pension costs to school districts. Although this plan does make some sense, there are a few problems with this approach.
A new study of the Massachusetts Teachers’ Retirement System (MTRS), Robert Costrell and Dillon Fuchsman from the University of Arkansas finds that 74 percent of educators are pension “losers.”
Desperate times call for desperate measures, or so the saying goes. Staring down a financial crisis, Illinois is considering a fiscal Hail Mary: a massive fire sale on public debt. While Illinois’s finances certainly are in real trouble, issuing the largest public bond in history may do more harm than good. Here are 5 issues to consider.
People may assume that an "expensive" retirement must obviously translate into one that's also "generous" for workers. But that's not the way teacher pension plans work.

This afternoon, I spotted a tweet from a San Diego parent: 

There's something particularly wrenching about being asked what services should be cut at your kid's school to pay for increased employee pension & healthcare costs, when most working parents don't have pensions. https://t.co/Vs6uMojuSt cc @sdschools

— Ashley Lewis (@AshleyJPL) January 12, 2018

 

I followed the link to the survey, and a message from the San Diego Unified School District said it was seeking input on how to resolve a growing budget shortfall due to "increases in costs outside of the district’s immediate control, such as healthcare costs, utilities expenses, and state retirement contributions that are all expected to rise for the foreseeable future." 

In the pension world we call this "crowd out." Benefit costs are slowly crowding out the discretionary money available for states, districts, and schools to spend on other priorities. San Diego is now seeking input on what to prioritize in its cuts. Here's it's proposed list: 

Passive investing approaches could provide teacher pension plans with higher returns, lower fees, and fewer political pitfalls.
States can shift new workers into new retirement plans easier than many pension advocates claim.

WalletHub recently released its new rankings of the best states for teachers. This year, there is a new best and worst state. New York grades as the best state overall, while Arizona came in last.

WalletHub graded states based on their opportunity and completion, which included salaries, pensions, growth, and even tenure. They then also took into account the state’s academic and work environment, which among other things, was based on student-teacher ratios, turnover, and union strength. Altogether, this ranking is based on a breadth of variables.  

WalletHub made at least one key improvement from its rankings last year: They amended how they evaluate teacher pensions. Previously, they rated states solely on the average pension paid out to retirees. As I wrote last year, it is a big problem to evaluate a state pension system this way, because average pensions don’t tell the whole story of a state’s pension system. Less than half of teachers even qualify for a pension. Take New York, WalletHub’s highest rated state. It has an average pension of around $44,000 but only 40 percent of teachers stay long enough to qualify for one in the first place.

To their credit, WalletHub responded to this criticism and upgraded how they assess the quality of state pensions. They now also include the percent of teachers whose pension doesn’t break even. In other words, teachers whose pension benefits are less valuable than their own contributions to the pension fund. This is a good decision by WalletHub that improves how they evaluate teacher pensions across the country.

We have our own 50-state ranking of state pension systems. Check out how your state measures up.