Blog: Mobility and Portability

According to important new research, teacher pensions—both how generous they are and how they are structured—have important effects on the quality of the teaching workforce. This research provides some insight into how the looming retirement of the Baby Boom generation may affect students.

Last week the Center for Retirement Research released a research brief looking at whether teacher salaries and teacher pensions affect the quality of new teacher hires, measured by SAT scores. Even after controlling for things like the poverty level of the school, minority enrollment, gender, and location of the teacher’s preparation program, it found that teachers from more highly selective institutions sought out teaching jobs with higher compensation. Teachers preferred both higher salaries and higher retirement spending, which is somewhat surprising given that retirement costs are often assumed to be opaque to employees, especially younger ones who won’t be thinking of retirement for many years.

In the mid-1990s, Illinois offered an early retirement incentive which allowed employees to purchase extra years of creditable service for calculating their retirement benefit. Over a two-year period, Illinois lost 10 percent of its teachers, most of whom were experienced teachers, as the early retirement incentive led to a threefold increase in the retirement of experienced teachers in the 1994 and 1995 school years.  Across the state, average teacher experience declined and the number of new teachers increased substantially.

In Education Week, Sarah Sparks covered a new study looking at the Illinois early retirement program. In a nutshell, even though the “5+5”program led to huge numbers of older, more experienced teachers retiring, it did no harm academically. In fact, student achievement may have gone up.

All else equal, and since we know that teacher effectiveness rises with experience, we would have expected student achievement to go down. Yet, despite the influx of novice teachers, student math and English test scores either stayed the same or went up. Importantly, those results held true for low-income, minority, and low-achieving students as well. 

This blog entry first appeared on The Quick and the Ed.

NCTQ’s new report on the state of state teacher pension plans is well worth your time. If you’re new to the pension issue, it does a great job of breaking down the issues in simple and clear language. If you know your way around defined benefit plans, there’s still lots of good resources on, for example, the number of states that made changes to their pension formulas over the last four years. And, if you only care about a particular state, it has lots of tables where you can find exactly how your home state is doing.

So go read it all and save it as a resource. For this blog, I want to pull out one of its main findings and show why it matters. Since 2009, 13 states have changed their vesting requirements, and 11 of those 13 made this period longer. The vesting period is amount of time a teacher must be employed before becoming eligible for pension benefits. If they meet the minimum vesting requirement, they’re eligible for a pension. If they don’t, they typically can get their own contributions back and some interest on those contributions, but they forfeit the contributions their employer made on their behalf.

The graph below shows the distribution of state vesting requirements. In 2012, 25 states required teachers to stay in the state pension plan for at least five years before vesting, and 15 required them to stay 10 years.

With today’s increasingly mobile workforce, five or 10 years is a relatively long time to stay in one job. Many teachers will never meet their vesting requirements and will be forced to forfeit their employer’s contributions and, in many states, they will also lose out on any interest that their investments would have accrued.

Let’s use Illinois as an example of how many teachers will meet the state vesting requirements. In 2010, faced with the one of the largest pension deficits in the country, Illinois created a new, less generous pension plan for new teachers that lengthened the vesting requirement from five years to ten. Education Next ran a report from Bob Costrell, Mike Podgursky, and Christian Weller that showed how the changes will affect teachers who stay their entire career teaching in Illinois (see Figure 2 here). However, we know that a large percentage of teachers won’t ever make it to five years in the profession, let alone 10.

New York City Mayor Michael Bloomberg has proposed new pension rules that would require workers to work at least 10 years, double the current requirement, to qualify for a pension. This is a really short-sighted idea for someone who professes to care about the quality of government workers, including the city’s 75,000 teachers. Raising the vestment age would save the city money in the short-term, but it would mean government workers would essentially not have a retirement plan until they reached 10 years of service. That would hurt recruitment and retention efforts, and it would also create strong push and pull incentives to stay on the job, regardless of burnout or a desire to pursue a new career, until they reach that 10-year milestone. For better ideas on revamping pensions, see here

This blog entry first appeared on The Quick and the Ed.

Public- and private-sector workers’ retirements used to be structured similarly. Not that long ago, both groups were likely to have access to defined benefit pension plans that guaranteed monthly payments until death. Both sets of workers retired at about the same ages.

These things have changed over the last 25 years as private-sector employers have abandoned DB plans, private-sector workers have been retiring at older ages, and public-sector workers, including teachers, have been retiring younger. By 2009, only one in five private-sector workers had access to a DB plan, compared to 89 percent of teachers and 84 percent of all state and local government employees who are still enrolled in one.

People make retirement decisions for all sorts of reasons. Maybe they have grandchildren they want to spend time with, or a hobby they want to develop. People also base their retirement decisions on both the amount and the structure of their retirement benefits. Even after controlling for total wealth, the security offered by DB plans–those guaranteed monthly payments until death–lead people to retire 1-2 years earlier than they would with 401k plans. Because of the generosity and the structure of their retirement plans, teachers now retire more than four years younger than private-sector workers.

This divergence didn’t always exist, but it’s becoming a real problem. The workers at companies that used to offer DB plans but now only have access to less-secure 401ks are not likely to tolerate this imbalance forever. The Wall Street Journal is reporting that many employers who cut their matching contributions during the Great Recession have been slow to reinstate them, which will only make the problem more pronounced. Teachers and other public workers have long traded lower base salaries for better benefits and more security, but that dichotomy has become more obvious and more important. Taxpayers may not continue to look kindly on generous teacher and government-worker retirement plans as their own are being cut. 

This blog entry first appeared on The Quick and the Ed.