Blog: Mobility and Portability

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.
Where do we begin on the path to building a pension system that doesn’t further short-change Millennials?

How much is the “average” teacher pension? That may sound like an easy question, but there are actually many different ways to answer it.

I’ll use Illinois to show why. Illinois lawmakers recently agreed to legislation that will change the way teacher pension benefits are calculated. In the process, news articles often cited the “average” teacher pension as justification for or against the changes. The Teachers’ Retirement System of the State of Illinois’ official estimate says the weighted average teacher pension in 2012 was $4,018 a month or $48,216 a year.* This estimate would be adequate to use if pension payments formed a normal distribution and there were no high or low outliers. In reality, pension averages tend to be skewed by a small number of large winners.

It's important to clarify that most teachers won't qualify for a pension in the first place. They simply won't stay teaching in their state long enough to qualify for a pension. Illinois estimates that only about 40 percent of beginning teachers will teach in the state for 10 years, the length of time now required to earn even a minimal pension. But, even for those that do qualify, there are many teachers who stay long enough to qualify for some minimal monthly payment but not long enough to reap the full rewards of the pension system. Depending on the state, teachers need to stay for 25-30 years in order to maximize benefits. Only a small minority last that long, but they’re rewarded with much higher pension payments, delivered monthly for the rest of their lives. Weighted averages hide all the teachers who leave before then. 

In its Comprehensive Annual Financial Reports, Illinois publishes a table of the monthly pension payments received by all retirees, disaggregated by when the teacher retired and how many years they taught. The table lists average monthly payments for groups of retirees, so, for example, users can see there were 1,370 teachers who retired between one and four years ago who had accumulated 10-14 years of experience. These ex-teachers received monthly payments of $1,282, or $15,384 per year.

Let’s say you are running a school district. Would you raise teacher compensation (salaries and retirement benefits) by 5-8 percent for all of those who stay less than 20 years in exchange for lowering compensation by up to 3.4 percent for 38-year veterans?