Last year was a good year for public pensions. Two-thirds of state pension plans improved after the stock market boosted returns. For the first time since the recession, total funding increased, rising from 72 to 74 percent. (But not all places are continuing to see good returns and past debt still remains.)
But even despite a year of improved returns, the real question lingers. Are these plans really working for workers?
For most teachers, the answer is a flat no.
Pension plans inherently structure benefits in a way that shortchanges both early and mid-career teachers (or anyone who stay less than 30 years in a single system). Over half of new teachers won’t meet their state’s minimum service or vesting requirements. Seventeen states require a teacher to serve for 10 years just to qualify for any benefit at all. Even for teachers who do remain long enough to qualify, the odds are they’ll end up paying more in contributions and interest than what they’ll get back in return from the state, ending with a negative return.
After the recession, plans have only gotten worse for new hires. In Massachusetts, the state has cut benefits down so much that new teachers never break even on their contributions. Instead, these teachers are net contributors to the plan, essentially paying a tax penalty just to teach. Plans may be hitting better investment returns, but this doesn’t directly impact the quality of benefits teachers receive because benefits are set by a predetermined formula.
There are better alternatives that can provide teachers with adequate benefits while still being affordable to the state. It doesn’t make sense to continue chasing stock returns and riskier investments for a system that doesn’t work for most of its members. While it’s definitely a good thing plans are improving in funding, it’s worthwhile to take a step back and assess whether most workers are even benefiting from public pension plans.