Pensions and Human Capital
Public pension benefits have been structured and enhanced over the last two decades to heavily favor teachers willing to stay in one state or district pension system. In 1988, it made sense for states to set up retirement systems that valued and rewarded experience because that’s how the workforce largely operated. If you asked teachers how many years of experience they had, the most common answer would have been 14 or 15 years of experience. In the intervening years, that has changed significantly. In 2008, if you asked teachers the same question about how many years of experience they had, the most common answer would have been one or two years.
A stable and experienced teaching force is important for continuity and it can also be cost effective, since recruitment and training costs can be substantial. But an additional year of teaching experience does not necessarily mean a teacher is more effective. Teaching effectiveness tends to increase rapidly in a teacher’s first few years on the job, only to level off after a few years. Teachers with a few years of experience are indistinguishable, in terms of effectiveness in the classroom, from teachers with many more years on the job.
Teacher pensions, however, are structured as if those last years are the most productive. Plans mostly back-load benefits so that teachers accrue little retirement wealth in early years, only to see substantial increases in their last years in the classroom. Teacher pensions cannot be expected to entirely solve education’s human capital problems. But given the clear disincentives that exist today, it is essential that conversations about pensions and those about improving teacher quality do not happen in isolation from one another.