Blog: Pensions and Human Capital

Read about our latest research on inequities inherent in teacher pension plans, presented at the annual Association of Education Finance and Policy.

Illinois’ $111 billion unpaid pension debt--over half of which is due to teachers--has prompted talk over a federal bailout. Illinois policymakers continue debating fixes without any real long-term solutions, let alone a budget

But the $58 billion question remains: how well are Illinois teacher pensions actually serving its workers?

Unfortunately, not that well. Despite its high price tag, Illinois’ teacher retirement plan is doing a poor job of serving the majority of its teachers.

Last week, Chad Aldeman, Daniel Fuchs, and I released a report that examines the benefit structure for Illinois’ teachers. New teachers, in particular, face substantially lower retirement benefits than teachers hired before the recession. In 2011, in response to worsening financial conditions, the state legislature created a less generous plan for new teachers called “Tier II.” Tier II imposes on teachers a higher minimum service requirement (up from five to 10 years, making it more difficult for new teachers to qualify for a minimum benefit), a higher normal retirement age (meaning teachers have fewer retirement years to collect a pension), a less generous pension formula (calculating the final average salary from the last eight years of service instead of just four), and a lower, uncompounded cost-of-living adjustment (COLA).

The graph below compares Tier II benefits for new teachers to the prior Tier II plan. Notice how the red line dips negative for the first two and half decades of a new teacher’s service. This means that a 25-year old Illinois teacher hired after 2011 won't receive a net positive retirement benefit until she's worked at least 26 years. Until then, she’ll pay a penalty just to participate in the system.  


Teach for America takes a bold stance on teacher compensation and benefits.
The case has spurred much discussion about union dues and their required base contribution, or “agency fee.” I take a look at union dues and pensions on Fordham B. Institute’s The Flypaper.
Last year was a good year for public pensions. But despite a year of improved returns, plans aren't meeting the needs of most teachers.
Mary W. is a former nurse and second-career teacher from Georgia who reached out to us to learn more about the current research on pensions and Social Security. Social Security coverage varies within the state of Georgia, and some school districts provide coverage while others do not. I interviewed Mary to hear her story and perspective on retirement planning as a teacher.
Unlike the rest of Illinois, Chicago only receives a small sliver of pension funding from the state.
Teacher pension plans expose teachers to attrition risk--the possibility that a teacher won't stick around long enough to qualify for the larger benefits waiting for those who stay.
There are teaching jobs in every state, but compared to other professionals, teachers are unlikely to move across state lines.
Public sector unions praise Social Security. Except they don’t want it for all of their workers.