Public pensions’ fiscal crises have become a hot topic, but two simple pension reforms would mean more money and freedom for current and future teachers without costing taxpayers another dime, says a new study.
These two reforms: Let teachers accrue pension savings steadily throughout their careers, and pay teachers more directly through salary rather than through their backloaded pensions, states the Manhattan Institute report by Josh McGee and Marcus Winters.
“The system rewards long-term employees at the expense of shorter and mid-term employees,” McGee said. “It takes a 25-year old entrant into the [New York City] teaching system nearly 20 years to earn $50,000 in retirement savings. We’re harming those people’s retirement security.” That same teacher, the paper notes, would earn another $550,000 in retirement wealth for sticking around another 20 years.
The paper examines the effects these reforms would have on the nation’s ten largest school systems. It concludes the two changes would raise teacher salaries, give teachers more control over their retirement, make teaching more attractive to people who may not want to work in the same district for decades, and offer teachers more control over their careers.
Many people don’t know teachers don’t earn pension benefits at a steady rate, Winters said. Teacher pensions, like most government pensions, typically commit very little money until they have stayed in the same school district for at least two decades, then spike into comparatively high pensions. This leaves most teachers with very little retirement wealth despite years of work, whereas the minority that stick it out in one place until the spike gets far more for retirement than a comparable private-sector employee.
Few Remain Two Decades
Winters says the disparity gets worse as Americans move more often. Currently, only 28 percent of teachers remain in the profession for 20 years, and not all of these remain in the same district, Winters notes.
“The percentage of teachers who benefit is a lot smaller than the percentage of teachers who are harmed,” he said.
In Los Angeles, the city with the biggest projected salary benefit from these policies, an average teacher would earn 7.15 percent more each year.
“This problem is getting worse because people aren’t paying attention to it,” McGee said.
“Better Pay, Fairer Pensions: Reforming Teacher Compensation,” Manhattan Institute, September 2013:http://heartland.org/policy-documents/better-pay-fairer-pensions-reforming-teacher-compensation.
Image by Ondra Soukup.