Most observers of the current teacher pension plans focus their attention on the small minority of teachers who dedicate their careers to working in public schools in one pension system. For these teachers, the current system produces a positive result, one in which they can retire in their mid-to-late 50s and feel secure knowing they have a steady stream of income, adjusted for inflation, guaranteed to last their entire lifetime.
However, this small group of winners ignores the much bigger pool of losers created by the current system. Those who remain in the system long enough to benefit—an ever-shrinking group of teachers—are the most organized politically via teachers unions and other stakeholder groups. The pension plans themselves are concerned only with providing members with a stable retirement. In fact, by withholding employer contributions and interest from teachers who withdraw before they reach retirement age, the plans are able to provide a larger benefit to those who do choose to stay.
In other words, no one is watching out for the interests of young and mobile teachers. Even though they lose out under the current system, young and mobile teachers are diffuse, unorganized, and in many cases not even aware of how the system disadvantages them.
Legislators respond to these political dynamics. In good times, they can offer benefit enhancements to a large and important constituent group. Because the costs of raising benefits are deferred until the teachers actually retire, the total bill won’t come due for years, and the legislators who vote for increasing retirement benefits are not the ones who have to figure out how to pay for them. Alternatively, when a recession hits, legislators can reduce pension benefits for new workers without angering any particular constituency.