Blog: Pensions and Human Capital

A new study provides evidence that teachers are not particularly sensitive to changes in retirement benefits. If anything, updating teachers’ retirement options could even free up resources to raise base salaries, which may ultimately affect the teacher workforce more than retirement benefits ever can.
A recent Chicago Tonight article highlighted the top pension earners in the Illinois Teachers Retirement System. Only 18 of the top 100 are women, and the majority are white, male administrators.

As a part of its ongoing teacher diversity series, the Brown Center on Education Policy recently published a piece looking at different incentive structures districts use to attract people to the education profession. They found that some incentives are related with an increase in educator diversity. These findings are instructive and districts may want to consider them as a part of their teacher diversity efforts. That said, our research suggests that even once a person of color enters the education profession, she likely will still face significant barriers to advancement and higher salaries.

The Brown Center’s study relied on 2011-12 Schools and Staffing Survey (SASS), which provides information on the context of public and private schools across the country. Among the race-neutral financial incentive policies they studied, they found that offering relocation assistance, loan forgiveness, and bonuses for excellence in teaching are associated with increased staff diversity. As such, they recommend districts interested in increasing racial diversity explore these racially-neutral financial incentive structures.

These findings are important in their own right. Nevertheless, diversifying the education workforce does not stop after recruitment. More must be done to address the fact that educators of color must contend with additional barriers once they enter the profession.

In our recent report we explored race-and gender-based salary gaps in Illinois. We found that women earn salaries that are on average $5,500 less than what men earn. As shown in the graph below, we also found significant gender-based pay gaps within races and ethnicities. Hispanic women, for example, earn on average $4,500 less in salaries than Hispanic men.

Colorado teachers deserve a say over their retirement benefits.
Teachers, no matter how new, shouldn’t need a side hustle to make ends meet. But, conservatively (and without including summer work), 16 percent do. One solution? Pension reform. Right now, states pay, on average, $6,800 per teacher toward pension debt. These payments aren’t going to future benefits, but instead to pay down existing debts.
After zooming out and looking across the full working career, it becomes clearer that a portable benefit plan would be better for most teachers.
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.