Teacher Pensions Blog

  • Teacher salaries differ – sometimes significantly – from school district to school district. And as I’ve written previously, differences in salaries are exacerbated by state pension funds. Districts serving high concentrations of low-income students often pay teachers lower salaries than other districts and also end up spending far less on teacher retirement as well.

    In an analysis of Illinois teacher pay data, I found that this problem is particularly pronounced in rural and urban school districts. However, the reasons for the pay disparities differ between rural and urban districts. Rural districts have lower average salaries and thus less valuable pensions. Urban districts offer salaries comparable with the suburbs, but have a greater share of educators who do not qualify for benefits in the system, and a greater share of educators with fewer years of experience overall, which also results in lower pension benefits.

    As shown in the graph below, rural districts in Illinois spend the least per pupil on salaries, while urban districts spend far and away the least per pupil on pensions. As a result, the aggregate disparity with suburban districts actually increases for both rural and urban districts. Once you factor in pensions, the rural-suburban gap increases by $173 per pupil, or 24 percent. Urban districts spend only $61 less per pupil in salaries than suburban districts. However, after accounting for pension spending, that gap increases to $969 per student.

    Rural and suburban districts earn roughly the same percentage of salary in pensions. Nevertheless, since rural districts spend far less per student in salaries, the spending gap grows after accounting for pension spending. So the problem for rural districts is simply that they do not, or cannot afford to, pay teacher salaries comparable to what suburban districts do. 

    The problem is different in Illinois’ urban districts. On average cities pay about the same as suburban districts. That said, their pension spending per pupil is significantly lower than suburban districts. This is principally due to two things. First, Chicago operates its own pension fund, which is in an even worse financial situation than the state pension fund. In the final year of this analysis, the Chicago Teacher Pension Fund contributed only 6.24 percent of salary to the fund compared with 24.06 percent across the rest of the state. The experience of Chicago teachers greatly contributed to the lower pension spending. The good news is that this problem is somewhat ameliorated by a recent law requiring the state to contribute more to help cover Chicago’s teacher pension costs.

    The second reason is urban districts employ a higher concentration of younger teachers. Indeed, 5 percent more teachers in suburban districts reach the 5 years of service required to vest into the system and quality for a pension. And for those educators hired after 2011, the vesting period is 10 years. Even fewer teachers will reach that mark. As shown in the graph below, urban districts have a higher concentration of inexperienced teachers. Indeed, suburban districts employ a greater share of mid-career and long-term educators. Since pension spending is determined by formula and is based on salary and years of experience, a disparity in either variable will produce a disparity in pensions.

    The structure of state teacher retirement systems produces the unintended consequence of exacerbating existing inequities between school districts. And while teacher pension spending is a particular kind of school spending, it nevertheless is yet another disadvantage facing districts that already have fewer resources.

    It is understandable that districts with a greater capacity to offer higher salaries will do so. It would help close funding inequities if states provided greater financial support to high-poverty districts. Yet, unless that results in salary equity, the pension system will contribute to spending disparities. There are no easy solutions to this problem, but states should look for ways to provide teacher retirement benefits that avoid compounding existing inequities.



  • The following is a guest piece from Carrie Hahnel, on behalf of The Opportunity Institute. Carrie thanks Guy Johnson, Christopher Edley, and Chad Aldeman for their guidance and input. Follow Carrie on Twitter at @CarrieHahnel. 


    When California passed the Local Control Funding Formula in 2013, it represented a political consensus that state education aid should be distributed based on student needs,[1] and that a primary role of state funding is to mitigate the impact of locally-based funding inequities. These are fairly uncontroversial positions, and represent a principled approach to equity that is mirrored in the way federal education funds are spread across districts and schools. State and federal policies that level the playing field are essential because young people affected by poverty, segregation, discrimination, and trauma often have greater educational needs. Without some kind of counterbalance, history tells us that local policies and funding too often exacerbate inequities.

    Yet when it comes to teacher pensions--a significant form of state spending on education, and a major part of the education budget--this equity principle is rarely discussed.

    The Opportunity Institute urges this to change, since equity is its main concern. This concern is anchored in the belief that Americans ought to have a shared interest in public investments that support the success of each and every child. In considering pension equity, the Opportunity Institute starts from the premise that we can: (1) honor the wage and retirement-related promises we have made to our teachers, staff, and school leaders, and (2) provide timely and sorely-needed services to those students in greatest need.

    Pension spending as a form of state investment is particularly salient in California, because the state – not just employees and their employers – contributes to the California State Teachers’ Retirement System (CalSTRS). This makes CalSTRS somewhat unique among teacher pension programs. The state of California alone will pay $4.4 billion into the teacher pension fund in 2019-20, which is about 6 percent of total K-12 spending and more than $700 per student. That is on top of the roughly $1,280 per student that districts will spend on teacher pensions this year.[2]

    Policy makers and the public should demand to know who is reaping the greatest share of the benefits from that investment. Do teachers and students in our neediest communities benefit more than their counterparts in wealthier areas? Our analysis suggests they do not. At best, the current system is approaching an equal distribution of dollars, with wealthier districts benefiting somewhat more from this state investment than poorer districts. It is a far cry from equity.

    Teachers in all parts of our state deserve good retirement benefits--this is good for the profession and good for students. At the same time, equity advocates should ask whether the state should be boosting wealthy communities’ total compensation, particularly when it comes at a real cost to less well-off districts.


    Most public school teachers in California are paid according to locally bargained salary schedules and receive locally determined health and welfare benefits. California teachers do not participate in Social Security, so they rightly expect their pensions to provide reasonable retirement security. Most are eligible to receive a state pension and participate in the California State Teachers’ Retirement System (CalSTRS). This is funded by contributions from employees, districts, and the state.  The benefit itself is determined by a teachers’ years of service and final salary, with many of these benefits backloaded. A new teacher starting out today who works 32 years in the CalSTRS system could retire at age 62 with annual retirement benefits equivalent to about 64 percent of his or her final salary.[3]

    Unfunded liabilities

    The cost of teacher pensions in California is rising, but not necessarily because teachers are getting paid more or because their benefits are improving (aside from annual inflation adjustments). Instead, costs are on the rise because investment returns have not kept up with projected returns, people are living longer, and the number of workers contributing to the system is lower than the number who are drawing on it. These factors and others have contributed to a massive unfunded liability. As of June 2017, the unfunded liability of the California State Teachers’ Retirement System (CalSTRS) – the amount it will owe to teacher retirees over the next 30 years but hasn’t yet funded – stood at $107 billion.[4] That’s about the GDP of Ecuador, or enough to cover University of California tuition, fees, and living expenses for more than 20,000 students per year for the next 30 years.

    Rising contribution rates

    To chip away at this liability, the legislature has been gradually increasing state and district contribution rates. In 2019-20, school districts will pay 17.1% of a certificated staff member’s salary, the state will pay 10.3%, and employees will pay 10.3%. In total, 37.7% of each teacher’s salary will be paid into the pension fund this year. By comparison, Social Security collects 6.2% each from employees and employers, for a total contribution rate of 12.4%. 

    This contribution is expensive for cash-strapped school districts, but it could have been worse. Rates were expected to rise to 18.1% this year and 19.1% next year, as required by Assembly Bill (AB) 1469, signed into law by Governor Brown in 2014. Recognizing the fiscal strain this has placed on school districts, Governor Newsom’s 2019-20 budget invests $850 million over the next two years to buy down the CalSTRS and CalPERS contribution rates and offer districts some short-term relief. (See Figure 1.) In addition, the budget includes $2.3 billion in supplemental payments to the pension fund to decrease districts’ share of the long-term liability. These two moves are expected to save districts approximately $6.1 billion over the next three decades. Finally, the budget also included $3.6 billion in supplemental payments to decrease the state’s share of the liability.[5]

    Figure 1: Employer CalSTRS contribution rates have risen sharply under AB 1469, but the state is buying down these rates over the next two years

    State Pension Aid Disproportionately Benefits Wealthy Communities

    Since pension benefits are a function of a teacher’s salary at the time of retirement, higher paid teachers will draw down more in pension benefits than lower paid teachers. Therefore, districts that can pay teachers more will draw more state pension aid on behalf of their employees than lower paying districts.

    Districts with higher teacher salaries tend to be those serving fewer low-income, English learner, and foster youth students—a category the state calls “unduplicated” under LCFF, but that we will call “high need” for simplicity’s sake. This is demonstrated by Figure 2, which compares teacher salaries in high and low-need districts.

    Figure 2: On average, teachers in low-need California school districts receive nearly $9,000 more in annual salary than teachers in high-need districts 

    Source: Analysis of 2017-18 J-90 data, in combination with the percentage of students who are unduplicated low-income, English learners, or foster youth, as reported by the California Department of Education

    Using teacher salary data, we estimated how much of a benefit different districts were likely to receive from Governor Newsom’s $850 million pension aid package. Specifically, we estimated how much the first-year rate-buy down would save each district. On average, elementary, high school, and unified districts will save $43 per student. The differences between districts based on student need are not extreme, but they are regressive. That is, less-needy districts – those with fewer low-income, English learner, and foster youth students – will receive more of a benefit since their teachers have higher salaries. (See Figure 3.)

    Figure 3: Lowering the CalSTRS contribution rate from 18.1% to 17.1% will save districts $43 per student, and low-need districts will fare slightly better than high-need districts


    This analysis looked at only the $850 million rate buy-down, not the additional $2.3 billion Gov. Newsom has put into reducing districts' long-term liabilities. But the calculus is essentially the same - state aid that is distributed as a function of teacher salaries will lead to regressive investments. For instance, we estimated that in 2017-18, the state contributed $510 per student in pension aid on behalf of low-need elementary districts, but only $402 per student in high-need elementary districts. That’s a gap of $108 in pension spending.

    If we were to look at school-level rather than district-level spending, the gap would probably be even larger because schools in wealthier neighborhoods often have higher paid teachers. Indeed, a 2017 analysis of Illinois pension spending data found that the state contributes $566 more per student in the wealthiest schools than in the poorest.[6]

    Undercutting the Promise of LCFF

    The promise of LCFF was that higher-need students would benefit from greater resources that would be used to level the playing field. And to be sure, the state is now directing more funding to education than ever before, and it is spending more equitably than in the past.[7] But unfortunately, regressive policies that direct a disproportionate share of money to wealthier communities—whether intentionally or not—cut against that promise. It’s not just this pension aid package, which is only modestly inequitable. It is also the fact that wealthier communities already have the means to raise more money for schools. Wealthier communities are already more likely to:

    • Pass parcel taxes. In 2017-18, 113 districts had parcel taxes. The average district that approved a parcel tax was only 32 percent free or reduced-price lunch and generated an average of $1,080 per student.
    • Raise facilities funding through bonds. Districts with greater property wealth raise significantly more money through local revenue bonds; state modernization funds also disproportionately benefit wealthier districts.[8]
    • Generate local revenues through donations, PTAs, and other sources. Some districts, including Piedmont City Unified, Portola Valley Elementary, Hillsborough City Elementary, Orinda Union Elementary, San Marino Unified, and others report that they raise more than $1,500 per student from local sources. This is only the amount reported and does not include all financial or in-kind donations. These local revenues can be used for many things, but they often help to improve existing services by reducing class sizes or helping to buy additional programs like art, music, gardening, or field trips.      

    Regardless of whether communities have a robust local tax base, wealthy residents, and/or parents who are simply able to contribute more to their local schools, the result is that these districts can independently invest more in facilities, teacher salaries, and other programs and services than can lower-wealth districts. When the state distributes state aid on top of this in an equal or regressive fashion, it exacerbates inequities.                                                                                              

    A tale of two districts

    To illustrate how these differences stack up, let’s take a look at two school districts in San Mateo County on the San Francisco Peninsula. Redwood City Elementary and Menlo Park City Elementary share a boundary, with Redwood City spanning a larger, less wealthy, and more diverse area to the north, and Menlo Park covering a smaller, higher-income, and more white area to the south, just a few miles from Stanford University. Both communities are home to many tech giants and skyrocketing home prices.

    Figure 4: Two neighboring districts illustrate large funding disparities


    Redwood City


    Menlo Park City


    Students qualifying for free/reduced-price meals



    Students who are non-white



    Median household income[9]



    Parcel tax dollars per student[10]



    Other local revenues per student[11]



    Total per-pupil spending[12]



    Average teacher salary[13]




    Both districts have been successful in passing parcel taxes, although Menlo Park has four separate taxes that stack up to $1,089 per parcel, while Redwood City tried multiple times to levy a parcel tax before finally passing a modest $85 per-parcel tax in 2012. Menlo Park’s four parcel taxes bring in about $2,812 per student each year, while Redwood City’s parcel tax brings in just $233 per student.

    Menlo Park reports other local revenues of $1,884 per student, while Redwood City reports $841.These and other differences in local fundraising stack up. Despite the extra bump Redwood City gets from LCFF, it spends $12,834 per student each year, significantly less than Menlo Park’s $16,583 per student. As a result, Redwood City has less to spend on major expenses such as teacher salaries. The average teacher salary in Menlo Park is $107,000 while the average teacher salary in Redwood City is $78,000.

    Under Governor Newsom’s pension rate buy-down, Menlo Park will save about $71 per pupil while Redwood City will save about $39 per student. In total, the state annually pays about $770 per pupil in pension aid on behalf of Menlo Park but only $423 per pupil on behalf of Redwood City.

    What Can the State Do?

    At a time when rising pension and benefit costs are squeezing school district budgets and leading to painful reductions in student services,[14] the state should be seeking every opportunity to ease the burden on school districts through equity-centered policies, not regressive approaches that exacerbate inequities.

    To the extent the state is going to contribute more general fund dollars to schools, it should first prioritize the needs of communities that are under-resourced or marginalized. Researchers, policy makers, policy advocates, and community leaders should come together to propose viable solutions—but here are a few ideas to start.

    1. Fold state aid otherwise intended for immediate district pension relief into LCFF, so it is distributed equitably. The pension contribution rates would remain high, but districts could engage with their local communities to make decisions about how to best use their funds. There is certainly the risk that any “new” dollars would be sunk into across-the-board salary increases (which will also ratchet up pension costs), especially in districts with strong unions. The state would have to safeguard against this, potentially by finally and firmly constraining the use of LCFF supplemental and concentration grants, among other strategies.
    2. During years of strong economic growth, prioritize paying down the unfunded liability over offering relief directly to school districts. As the Legislative Analyst’s Office has pointed out,[15] this will benefit communities in the long run since it will accelerate progress toward a fully funded pension system. Prioritize district relief during economic downturns, when low-income students, English learners, and other vulnerable populations inevitably suffer from reductions in services.
    3. Rather than limit the ability of districts to raise money locally, find ways to capture and redistribute some of that funding. For example, require that a portion of local donations, such as parent contributions, be redistributed to poorer schools, or offer greater tax deductions for donations made in poorer school districts. Explore state measures that will expand local tax authority while building in safeguards to recapture, redistribute, and backfill funds to less wealthy communities.
    4. Consider hybrid plans that mix traditional pension benefits with quickly vesting, portable defined contributions. These plans could guarantee teachers retirement security while also allowing for mobility - which could be attractive to younger teachers. These types of plans could also help reduce state liabilities in the long run, which would free up more dollars to invest in schools through LCFF. Virginia, Tennessee, and Rhode Island have hybrid plans that may offer lessons learned.
    5. Incentivize or encourage districts to create differentiated pay opportunities for teachers working with high-need populations, such as special education students or English learners, or in schools with high concentrations of poverty. This would result in higher salaries in higher need communities and would ensure that local and state pension aid is more equitably distributed.

    No doubt there are opportunities to refine these ideas and introduce new ones. The overriding goal would be to ensure that any state investments in education--pension payments included--are steered by principles of fairness and equity.


    [1] The Local Control Funding Formula provides every district with a base funding amount and additional funding based on the percentage and proportion of students who are low-income, English learners, or foster youth.

    [2] Based on my own analysis using California Department of Education 2017-18 expenditure data and projecting ahead using new pension contribution rates.

    [3] Benefits vary depending on several factors, including age of retirement and years of services. Teachers who began teaching in 2012 are eligible to enjoy slightly better benefits under the “CalSTRS 2% at 60” structure, while teachers who began in 2013 or later fall under the “CalSTRS 2% at 62” structure. See the CalSTRS member handbook for more details.

    [6] Max Marchitello, “Illinois' Teacher Pension Plans Deepen School Funding Inequities,” 2017: https://www.teacherpensions.org/resource/illinois-teacher-pension-plans-deepen-school-funding-inequities

    [7] Rucker Johnson, Paul Bruno, Sean Tanner, “Effects of the Local Control Funding Formula on Revenues, Expenditures, and Student Outcomes,” part of the Getting Down to Facts II project, Stanford University, Sept. 2018; Theresa Chen and Carrie Hahnel, “The Steep Road to Resource Equity in California Education,” The Education Trust - West, 2017.

    [8] Eric Brunner, Jeffrey M. Vincent, “Financing School Facilities in California: A 10-Year Perspective,” part of the Getting Down to Facts II project, Stanford University, Sept. 2018.

    [9] Household income and race data are from Ed-Build: https://edbuild.org/content/dividing-lines/main.

    [10] Parcel tax revenues from Ed-Data.

    [11] Ed-Data 2017-18 General Fund Revenues. Other local revenues exclude parcel tax revenues.

    [12] Ed-Data 2017-18 Current Expense of Education per ADA (per Education Code Section 41372).

    [13] Analysis of 2017-18 J-90 data.

    [14] Hannah Melnicoe, Carrie Hahnel, Dr. Cory Koedel, and Arun Ramanathan, “The Big Squeeze: How Unfunded Pension Costs Threaten Educational Equity,” Pivot Learning, Oakland, CA, 2019.

    [15] Legislative Analyst’s Office K-14 Pension Rate Relief Proposals Handout: https://lao.ca.gov/handouts/Conf_Comm/2019/K-14-Pension-Proposals-053019.pdf.


  • Senator Elizabeth Warren recently announced a plan for Social Security reform. Among many other things, the plan includes one key provision that would be good for some very long-serving Massachusetts teachers and firefighters, but which would be bad for the rest of us. 

    Tucked inside the much longer plan, Warren writes:

    My plan also ensures that public sector workers like teachers and police officers get the full Social Security benefits they’ve earned. If you work in the private sector and earn a pension, you’re entitled to your full pension and your full Social Security benefits in retirement. But if you work in state or local government and earn a pension, two provisions called the Windfall Elimination Provision and Government Pension Offset can reduce your Social Security benefits. WEP slashes Social Security benefits for nearly 1.9 million former public-sector workers and their families, while GPO reduces—and in most cases, eliminates—spousal and survivor Social Security benefits for 700,000 people, 83% of whom are women. [emphasis added]

    The bolded section is a clever piece of writing. Let me explain. If you work in the private sector and earn a pension, you’re entitled to your full pension and your full Social Security benefits because you’ve been contributing to Social Security your whole career. If you work in state or local government and earn a pension, you’ll be eligible for your full pension and your full Social Security benefits if you contributed to Social Security your whole career

    Catch the distinction there? When Congress created Social Security, they made participation mandatory for private-sector workers, but optional for state and local governments. Today, about 25 percent of all state and local government workers are not covered by Social Security, including about 40 percent of teachers spread across 15 states. That includes Warren’s home state of Massachusetts, where teachers, firefighters, police officers, and other state employees are not covered.

    When public-sector workers are not covered by Social Security, that means they don’t contribute the 6.2 percent payroll tax that all the rest of us pay. Their employers also do not contribute. As far as the Social Security Administration’s records are concerned, those workers basically do not exist. Someone else—the state pension plan—is supposed to be providing those workers with adequate retirement benefits.

    But a problem arises when workers change jobs or move across state lines. If they have what’s called split coverage—meaning they work some years in Social Security and some years outside it—the Social Security formula would otherwise think they earned less income than they actually did. When it comes time to award their benefits, the Social Security formula would give them a more generous benefit than they truly deserve. (The same is true for spouses in households with split coverage.)

    An example might help here. Consider two workers, Teacher A and Teacher B. Assume they both earn $50,000 a year for 40 years of work, for a total lifetime earnings of $2 million. Teacher A works her entire career in New York, where teachers participate in Social Security. The Social Security Administration collects taxes, and will pay benefits*, based on her entire $2 million in lifetime earnings.

    Now consider Teacher B. She splits her career in two, half in New York and half in Massachusetts. She earned the same $2 million over her career, but the Social Security Administration only knows about (and taxed) half of that. When Teacher B goes to retire, Social Security would only see half of her lifetime earnings, the $1 million she earned in New York. Because Social Security offers more generous benefits to lower-income workers, the standard formula would replace a higher percentage of Teacher B’s earnings than it would for Teacher A.

    Or, consider how Teacher B compares to other type of workers. Teacher B, the teacher with split coverage, would have the same Social Security earnings as someone who worked for the same length of time (40 years) but at half the salary (just $25,000 a year). Teacher B would also have the same Social Security earnings as someone who worked at the same $50,000 salary but for only half the time (20 years). Should Teacher B, with a Massachusetts state pension waiting for her and an extra $1 million in lifetime earnings, receive the same Social Security benefit as these other types of workers?

    Congress said no. It decided giving Teacher B this type of “windfall” wasn’t fair. In response, it introduced the WEP provision to preserve the integrity of Social Security’s progressive benefit structure. (The WEP applies to individual workers, as in the example above, and the GPO applies to spouses in households with split coverage.)

    To be fair, Warren is not the first Democrat to propose getting rid of the WEP and GPO. But Warren’s proposal stands out because of where she sits. That is, Warren is in a position to do something about this situation given her perch as a a senator from the state of Massachusetts and a member of the Senate Health, Education, Labor, and Pensions Committee.  

    Remember how the Social Security Administration ignores non-covered workers? It does so under the assumption that states will provide some basic level of retirement benefits in the place of Social Security. Congress wrote into law that if a state does not provide its workers with a retirement plan, then the state must join Social Security.

    Unfortunately, Congress has paid little attention to what constitutes a suitable retirement benefit, and Massachusetts offers some of the worst public-sector retirement plans in the country. When the nonpartisan Urban Institute set out to grade state retirement plans, Massachusetts was the only state to earn an “F” grade. Other analyses have found similarly dreary findings for the state teacher pension plan. 

    Let’s say you’re a new teacher starting out in Massachusetts public schools this fall. Under the Massachusetts Teachers' Retirement System (MTRS), you’ll have to serve 10 years before qualifying for any pension at all. This 10-year vesting period would be illegal in the private sector, because Congress has imposed minimal requirements on company plans. There is no such protection in the public sector, and, according to MTRS’ own estimates, about two-thirds of new Massachusetts teachers will leave before reaching 10 years of service. They’ll have no Social Security and no pension to show for it.

    But these early-career numbers do not get at the full scale of the problems. In a forthcoming paper, I compare MTRS benefits versus what Social Security would provide for the same years of service. These two systems could not be more different. Social Security’s benefit formula is progressive, and it offers more generous benefits to lower-income workers. In contrast, under MTRS, the longer someone serves and the higher the salary they earn, the higher the pension they receive.

    When I compared these two benefit structures for new, 25-year-old teachers, I found that they would have to teach in Massachusetts public schools for 22 consecutive years before they would qualify for MTRS benefits that were at least as generous as Social Security. Due to its relatively high turnover rates, the vast majority of Massachusetts teachers will leave their service with retirement benefits that are not even as generous as Social Security.  

    THIS is the problem Senator Warren should be tackling. The people who lose out from the current arrangement are lower-income workers with comparatively unstable working careers. When the Social Security Administration ran the numbers recently, they found 19.6 million retirees with split coverage (aka they had some employment in non-covered roles). Out of those 19.6 million retirees with split coverage, 18 million of them faced no penalty from the WEP at all, because they didn’t stick around long enough to earn much of a pension in the first place. 

    That leaves about 1.6 million retirees who currently face some WEP penalty. But as the example above illustrated, these retirees are not exactly struggling. These are people who already earn moderate-to-large pensions from their state pension systems. In order for a Massachusetts teacher to even begin to face a WEP penalty, they would have to work at least 10 years in MTRS and at least 10 years in a job covered by Social Security. In addition, the WEP includes a special rule whereby no one's Social Security benefit can be reduced by more than half of their pension. That rule ensures that WEP only applies to people with pretty sizable pensions. 

    To be clear, the people affected by WEP aren't exactly wealthy--we are talking about teachers and firefighters and other public employees here--but they also aren't the most needy. They already receive a moderate-to-large pension from their state plan, and it wouldn't be fair to also reward them the “full” Social Security benefit provided to lower-income people. 

    Instead of ending the WEP and GPO altogether, Warren could pursue a few intermediate responses. As a Senator and a member of the HELP Committee, she could push the Social Security Administration to take a closer look at state retirement plans in states without Social Security coverage, like Massachusetts, to ensure the benefits they provide are at least as generous as Social Security. That’s not happening today. Warren could also sign on to other legislative proposals that are seeking to improve, not end, the WEP and GPO.

    For example, there's nearly univeral agreement on the need to fix the mechanics of how the WEP and GPO get applied. Currently, the Social Security Administration relies on individuals to self-report whether they have a pension and how much that pension is worth. Inevitably, there are errors in this process. In 2017 alone, the Social Security Administration estimated it spent $870 million in "over-payments," and the WEP and GPO were the main contributors to those administrative errors. 

    This implementation timeline is also a problem for individuals. The Social Security Administration only applies the WEP and GPO when someone goes to retire and files for their benefits, and that moment represents a rude wake-up call for would-be retirees, who are suddenly told they will receive less than they might have otherwise expected. The lack of transparency turns into an unpleasant financial shock (and, I suspect, a big part of the hatred toward WEP and GPO). 

    The most sensible way to solve all of these problems, and get rid of the WEP and GPO provisions in the process, would be to make Social Security coverage mandatory for all. No more split coverage, no more surprises for workers, no more complexity. Full Social Security benefits for all. If Senator Warren wants to provide a real benefit to the teachers and other public servants who need the most help, she should focus on extending Social Security to all public-sector workers who currently lack it.

    *This example is over-simplified, but technically, Social Security benefits are based on a worker's highest 35 years of earnings, adjusted for inflation. 

  • In the retirement world, the Florida Retirement System (FRS) is often held up as a model for other states. But while it is in better shape than most other states, Florida could still do more to help  its teachers save for retirement.

    Florida is often praised on two fronts. First, compared to other states, it has managed its finances reasonably well. FRS has a funded ratio of 84 percent, compared to 73 percent for the median plan nationwide.

    Second, Florida has been a leader in providing employee choice and portability. Beginning in 2002, it allowed new teachers to choose between a traditional pension plan or a portable defined contribution plan, called the FRS Investment Plan. After realizing that the portable option was likely the best choice for most teachers, in 2017 Florida shifted the default to automatically enroll new teachers in the FRS Investment Plan, while still allowing incoming teachers a choice over which plan was best for them.

    However, the FRS Investment Plan has one critical flaw. Namely, its contribution rates are too low.

    As of this school year, the official employer contribution into the FRS Investment Plan for “regular employees” like K-12 teachers is listed at 8.47 percent, but only 3.3 percent actually goes into member accounts. The state takes out a chunk for paying off the pension plan’s unfunded liabilities (3.56 percent of each teacher’s salary), a portion goes toward retiree health benefits (another 1.66 percent of salary), and assorted administrative fees make up the remainder.  

    Combined with a mandatory 3 percent employee contribution, that means Florida teachers are saving 6.3 percent of their salary toward retirement. Even with Social Security on top, that won’t be enough for most workers. Experts generally recommend that workers save at least 10-15 percent of their annual salary every year while they work in order to afford a comfortable retirement.

    It’s possible that Florida teachers are making up the difference on their own, through 403(b) accounts or IRAs or other investment vehicles. But why doesn’t the state set up its teachers for success, rather than leaving it to chance?

    The simplest way to do that would be to raise the default employee contribution rate to 5 or 7 percent instead of its current 3 percent. Many teachers would simply follow the default, but the state could allow anyone who wanted to lower their contribution rates back down to 3 percent to do so.

    Even if Florida didn’t want to “nudge” teachers in this way, they could at least allow teachers to save more through the FRS plan. Florida teachers seem to like the FRS Investment Plan—and they should, it’s well-run, offers low-cost mutual funds, and features annuity options to help workers spend down their assets in retirement—but they aren’t allowed to save more in FRS even if they want to. Again, Florida teachers may be putting aside additional money elsewhere, but the 403(b) market is rife with bad actors selling teachers high-fee insurance plans. Just by opening up its own plan, Florida could make its teachers better off.  

    Florida policymakers have already taken several steps to boost the retirement security of its teachers. But a few more tweaks could help even more.

  • When I was a kid, I worked at a local 9-hole golf course. It wasn't fancy. We didn't even take reservations, but we were the cheapest course in town and, inevitably, there would be times when we'd be so busy our customers would have to wait. On a few occasions like this, frustrated patrons would come up to us and ask how to get to the other golf courses around town. 

    The owner was proud of his course, and he hated hearing this particular question. So whenever he heard someone ask how to get to one of his competitors, he would boom out, "YOU CAN'T GET THERE FROM HERE!"  

    Clearly this was a preposterous answer. We weren't even located on a cul-de-sac, and anyone could simply retrace their steps and take a different road to a new destination. But that was part of my boss' little joke. His thunderous line didn't always work, but it did confuse and startle some customers into reconsidering and staying put to wait it out. 

    I think about this gambit a lot, because I often hear pension advocates use the same "YOU CAN'T GET THERE FROM HERE!" refrain. They'll often deploy it in response to data showing that teacher pension plans provide a secure retirement to only a small fraction of incoming teachers, and that those same plans have accumulated more than $500 billion in unfunded liabilities. The latest example comes from a paper written by Tyler Bond and Dan Doonan and published by the National Institute of Retirement Security (NIRS). The paper is ostensibly about what happened when states like Alaska, Kentucky, Michigan and West Virginia closed their defined benefit pension plans, but the paper's argument essentially boils down to saying that state-run pension plans are in such bad shape that they need new members to bail them out, and we must continue with the status quo forever. 

    On finances, Bond and Doonan argue that closing a poorly funded pension plan does nothing to pay down existing unfunded liabilities. This is true, but it ignores how the pension plans accumulated those unfunded liabilities in the first place. As Max Marchitello wrote in a recent report looking specifically at the case of West Virginia, when the state closed its defined benefit pension plan, it did little to address the plan's existing unfunded liabilities. The state still had to pay down those debts, and it largely failed to do so. But rather than blaming the state for accumulating those debts in the first place, or for failing to pay them off in a timely fashion, Bond and Doonan try to pin the blame on the shift to a defined contribution plan. That's a clever rhetorical trick designed to distract us from the question of whether the state's pension plan was good for the state or the majority of its teachers. (It wasn't.)  

    Similarly, Bond and Doonan attempt to argue that Alaska has trouble recruiting and retaining teachers because of its shift away from a defined benefit pension plan. But the authors neglect to mention that Alaska has always had trouble recruiting and retaining teachers. When we looked at the data on teacher turnover rates in Alaska over time, there was no visible effect of the retirement plan change. Teacher turnover was high in Alaska when they offered teachers a defined benefit pension plan, and it remains high now that new teachers are enrolled in a defined contribution plan. This finding squares up with what we've seen in other states as well; teachers just aren't that responsive to changes in their retirement plans. 

    Just like my former boss, pension advocates are using the "YOU CAN'T GET THERE FROM HERE!" refrain to scare legislators from asking tough questions about their state's pension plans. While responsible policymakers should be mindful of the effects of any potential change, and they should protect the promises made to current teachers and retirees, legislators should not be deterred from designing better solutions for the future. Ideally those plans would provide all new teachers with a path to a secure retirement. 

  • Most people probably don’t realize not all workers are covered under Social Security. In particular, teachers constitute one of the largest groups of uncovered workers. Nationwide, approximately 1.2 million teachers (about 40 percent of all public K–12 teachers) are not covered under Social Security for their time in the classroom.

    How did we get here?

    Why are some teachers covered, and others aren’t?

    As Leslie Kan and I write in our 2014 report, the exclusion of teachers from Social Security comes from decisions made decades ago. State workers were left out of the original Social Security Act in 1935, initially because of concerns whether the federal government could tax state and local governments. Later when states were given the opportunity to extend coverage to public sector workers in the 1950s, most states chose to extend coverage. A handful of states, however, chose not to. Instead, these states bet they could provide better benefits through their state pension plans alone than through the combination of a pension and Social Security. Indeed, pension benefits for full-career workers typically have a higher rate of investment return than Social Security. However, this arrangement works well only for the small percentage of teachers who stay 30 or more years in a single retirement system.

    Today’s reality is that half of all new teachers will not stay long enough to qualify for a pension at all; and for those who do qualify, many will receive pensions worth less than their own contributions. For teachers in states without Social Security coverage, they're at risk of leaving their public service with very little in the way of retirement savings. 

    Today, the majority of uncovered teachers work in 15 states (Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas) and the District of Columbia. Additional states have varied coverage where some teachers remain left out.

    Social Security Coverage for Teachers

    Source: National Education Association, "Charteristics of Large Public Education Pension Plans." 

    Social Security coverage varies within states and sometimes even within districts. In California, almost all state government employees, state legislators, and judges are covered by CalPERS and Social Security. Teachers enrolled in the California Teachers State Retirement System (CalSTRS), however, are not covered by Social Security. Within California schools and districts—superintendents and district employees tend to be covered by Social Security, whereas classroom teachers tend to be uncovered.

    States aren’t locked into keeping their teachers out of Social Security. When Social Security coverage was extended to the states in the 1950s, each state entered into what is called a Section 218 agreement with the Social Security Administration, detailing the extent of coverage. Today, federal law allows any state or local retirement system to modify their Section 218 agreement and join the program (states that opt into coverage can’t subsequently opt out). Certain states have state-level legislation that prohibit teachers from extending coverage, but most states do not have these barriers.

    This provides an opportunity for states to reconsider their decades-old decisions. While not sufficient as a stand-alone benefit, Social Security could provide teachers with a floor of secure, inflation-protected, and portable benefits – something many teachers don’t have and genuinely need.

    To learn more about teachers and Social Security coverage, read our report or watch the video below: