Blog: Mobility and Portability

In the late 1990s, state pension funds experienced surpluses from high returns in the stock market. Rather than prudently saving the surplus funds, many states passed legislation to enhance or increase pension benefits for public workers. 

In a recent paper, economists Cory Koedel, Shawn Ni, and Michael Podgursky analyzed who benefitted from a series of pension enhancements in Missouri in the late 1990s and early 2000s and by how much. As the authors calculate, teachers who were already well into their teaching career received benefit increases of over $100,000 in estimated pension wealth. However, to pay for the benefit enhancements and a falling stock market, Missouri has been forced to increase teacher contributions to the pension plan. That contribution increase was not enough to cancel out the benefit increase for late-career teachers, but it erased all gains for teachers who were early in their career at the time. Most importantly, because both employees and their employers were now paying higher contribution rates, it made the overall compensation structure much worse for all new teachers. That system still exists today. 

You should read the full paper, but to show the effect of the benefit enhancements for mid- and late-career teachers I created the gif below from the authors' Figure 1. It shows the changes in pension wealth for someone who began teaching in Missouri schools at the age of 25 in 1983. Her benefits improved substantially as a result of pension formula enhancements in 1996, 1999, 2000, and 2002, creating a much more generous benefit at the back end of her career. The dotted line in all the graphs is the baseline year of 1995. 

Chart: Missouri Pension Wealth Accrual Before and After Benefit Enhancements, 1995-2002

Missouri Pension Enhancements on Make A Gif

Source: Figure 1 here


States may be getting a deal for their teachers. Among other trends, the teaching force is simultaneously becoming younger and less experienced. This translates to cheaper costs for the state, but at the price of teacher retirement security.
Our schools are dealing with a lot more new teachers than they had in the past, and defined benefit pension systems aren’t set up to deal with this type of mobile workforce. What's causing the rise in mobility?
Pensions provide us with more than just financial data. Pensions also provide us with key information about teacher retention, reaching back for decades. In New York City, teachers do not remain in the profession as long as they did in the past. Instead of responding to this trend, the New York City teacher pension plan has become less generous to mobile teachers.
Last week we presented our new paper, Friends without Benefits: How States Systematically Shortchange Teachers' Retirement and Threaten Their Retirement Security, at the 39th annual conference of the Association of Education Finance and Policy (AEFP).
Just as teachers in Missouri cannot move between pension boundaries without incurring a financial penalty, teachers cannot move across state pension boundaries without incurring similar costs. This acts like a tariff that restricts the movement of human capital between pension systems.
Do pensions affect teacher retention decisions? According to their own data, state pension plans say no, at least for the vast majority of teachers.
In order to cut costs and recover from the recent recession, New York City recently lengthened the vesting requirement, the time period employees need to stay in order to qualify for even a minimum pension, from five years to ten. Now, half of all new teachers in the Big Apple will not qualify for a retirement benefit.
A “crisis” is sometimes in the eyes of the beholder. The public pension crisis has a lot to do with the broader broken compact between Americans and their government over fiscal priorities. Yet again, it’s a place where public school teachers are the leading edge of the great debate about what it means to be an American.
If you follow news about the District of Columbia Public Schools (DCPS) closely, you could be forgiven if you thought teacher turnover had increased since the schools were handed over to mayoral control in 2007. But, at least according to the city's teacher pension plan, turnover hasn't increased at all; it's actually declined slightly.