Teacher Pensions Blog

A new report from the National Public Pension Coalition (NPPC) reminded me of Upton Sinclair's famous line, "It is difficult to get a man to understand something, when his salary depends upon his not understanding it." The NPPC is an advocacy group funded by pension plans, so it makes sense that they cannot fathom any reasons why traditional defined benefit pension plans might not be great for all workers. In their new report, they try to argue that traditional defined benefit pension plans are better for charter school teachers than 401k-style plans, but in the process they make some glaringly misleading assumptions.

First, the report compares apples and oranges. Instead of comparing options that cost the same amount, the report ignores any notion of cost. If two retirement plans take the same contributions and make the same investments, they’ll get the same return. There's no magic sauce of pension plans, but the NPPC report tries to bury that fact by using wildly different contribution rates, and then assuming a much lower rate of return in defined contribution plans, despite recent data suggesting essentially no difference across different types of plans.

Now, NPPC would have been on firmer ground if they acknowledged that some charter school retirement plans are cheaper than the ones run by states. That's not universally true, of course, but it would be a fair statement, and one that leads to a debate about what our priorities are and the right balance between upfront salary versus in-kind benefit costs. There are also a range of diferent retirement plans, and each has trade-offs. Instead, the NPPC implies that traditional defined benefit pension plans are always the best retirement plan, which is objectively false for large groups of workers, including many charter school teachers. 

Worse, NPPC is stuck on the theory of pensions rather than trying to understand what happens in reality. Their comparison point in the defined benefit pension system is someone who teaches for 35 consecutive years (!). We’ve run the numbers on this using each state’s own actuarial assumptions, and here’s how many teachers reach 35 years in the eight states NPCC studies:

California: 31 percent

Florida: 9 percent

Indiana: 7 percent

Louisiana: 2 percent

Michigan: 8 percent

North Carolina: 0.4 percent

Pennsylvania: 0.5 percent

Wisconsin: 16 percent

California is an outlier on the high end, where about one-third of teachers reach NPPC’s 35-year mark. But in most states, NPPC is making its statement about all workers based on a tiny fraction of teachers.

The giveaway in NPPC’s report is that they don’t show how benefits accumulate over time. Instead, they only show comparisons in this very extreme case. But as we’ve shown in state after state after state, the vast majority of teachers leave before they ever get close to the large back-end benefits highlighted by NPPC. This is the reality of today’s teacher pension plans, and it leaves ALL teachers worse off, no matter where they work.

It would be more intellectually honest if NPPC tried defend this position. If they came right out and said the only thing that mattered to them was providing high back-end benefits to a small fraction of the teacher workforce, we could have a reasonable discussion about whether the trade-offs are worth it. Given who pays for the NPPC’s work, they may be willfully blind to those trade-offs, but it leaves them making silly arguments in an effort to distract the conversation.