Blog: Pensions and Human Capital

In a country were 76 percent of teachers are women, we’d expect to see females as lead earners in a state’s public school system. But that isn’t the case, and that same gender wage gap extends into retirement.
Pension systems don't believe that back-end teacher salary bumps are sufficient to change teacher behavior.
Pension plans themselves do not assume that teachers change their behavior in order to qualify for a pension.

State-based teacher pension plans are important. They make up an enormous portion of local K-12 budgets, and the vast majority of them are underfunded. But despite their weight, or maybe as a symptom of, the intricacies of these systems can be difficult to navigate. The National Council on Teacher Quality’s recent report, Lifting the Pension Fog, works to demystify the topic. The NCTQ team, in partnership with EdCounsel, collected teacher retirement data from all 50 states and the District of Columbia. We’re eager to build on their work in a forthcoming piece; they’ve provided a lot to work with. One data point that stands out though, is rising contribution rates.

NCTQ researchers found that just eight states have reasonable contribution rates – which they define as a combined contribution rate of 10-15 percent of salary. Unfortunately, a significant portion of pension contributions today are going toward debt costs – not to teachers themselves (see Figure 3 here). We’ve written about this before, but the short of it is that today’s new teachers are paying for years of pension system underfunding in the form of lower benefits and stagnant salaries. State pension debts are posing risks to hiring and retaining a quality teaching workforce.

But employer contributions are just one part of the plan. The graph below shows total teacher pension contribution rates (the table at the bottom of the post has the same data in text format). The blue bars represent the employer contribution (which can come from the state, a district, or both), and the orange bars represent the employee’s share. 

As the graph shows, the total contribution rates are daunting. The average is now 24 percent, and states like Pennsylvania, Kentucky, and Illinois are all contributing over 40 percent of a teacher’s salary into their state retirement system. Other states are heading in that direction.

Both teacher and employer contributions have been trending upward. Since 2008, 30 states have increased teacher contributions. In 1982, only 13 state plans had employee contribution rates of 7 percent or above. Today, 29 do.

Teacher pensions have evolved somewhat over time, but they’ve never escaped their original intent. Today, pensions provide financial security for those teachers that stay in the profession, but they also quietly push out veteran teachers. Maria Fitzpatrick suggests those incentive structures may be having an impact on women's retirement rates.
Shirley Ben-Ami was a teacher for nearly 35 years. She taught fourteen and half years in the New York City Public Schools and spent the last 20 years in Montgomery County, Maryland. In the following interview Ms. Ben-Ami talks about her experiences in the classroom and when it was time for her to retire.
A former teacher, Kevin L. Matthews II is a licensed financial advisor, author, and speaker. We reached out to Kevin to hear more about his decision to leave the classroom, and how teachers can best prepare for retirement.
Rising costs and arbitrary incentives are harming Nevada's ability to attract and retain a high-quality teacher workforce.
How do we get more STEM teachers? One idea is to convince folks leaving a STEM job to start a second career in the classroom. But, career-changers, particularly in STEM fields, would most likely have to accept both a significant pay cut and lower retirement benefits. This happens because these individuals will have two separate retirement saving plans. And, unfortunately, they will be unlikely to realize the full benefits of either.
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.