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Study Shows A Lot of Teachers Are Getting a Raw Deal with Pension Plans

Despite a widely-held assumption, pension plans are not enticing teachers to stay on the job and many teachers are paying into a system without reaping the benefits. A study conducted by EducationNext, examined pension plans and projections in all 50 states and found that the current pension plans in nearly all states are flawed in a number of ways.

States and school districts around the country spend upwards of $50 billion each year on pension plans for teachers, yet only one out of five teachers will stay on the job long enough to receive full benefits.

The study looked at the pension payoff for teachers and its influence over different points of a teacher’s career and possible ways to improve pension plans down the road.

For a teacher to qualify for a minimum pension, they must work for a set number years, paying into the plan -- otherwise known as a “vesting period.” These vesting periods vary from state to state with some states having a vesting period as high as 10 years. Teachers can withdraw their contributions prior to vesting, often times with interest, if they leave the job. Though any contributions made by the school or state go away.

Nationally, 9 out of 10 teachers participate in pension plan, often accepting lower base salaries for the promise of pension benefits in the future. While teachers don’t have to worry about outliving their pensions as the state pays until death, building these pensions is costly. Contributions account for 17 percent of teachers’ salaries on average.

The study which relied on Comprehensive Annual Financial Reports published by each state, found that pension plans provided little incentive for early- and mid-career teachers to stay on the job. If vesting had been an incentive, turnover rates should show a flattening in the years leading up to the vesting point and upward spike once the threshold is crossed. This didn't seem to be the case in any state examined, and it was only after around year 25 that pensions seemed to have an impact on a teacher’s decision to stay or go.

By year 25 (30 varying on the state) pension plans take a sharp increase in value and created two potential incentives for teachers, neither of which benefited schools. Burnt-out teachers who are closer to maximizing their pension plans will have more reason to stay on the job for a few extra years. For a teacher who starts at 25, their retirement benefits double between the ages of 53 and 60. Leaving the classroom at say, age 50, would be leaving a lot of money behind.

The study also argued that good teachers who still enjoy teaching but have hit retirement age will likely feel pushed to retire. Continuing to teach past a certain point would only postpone withdrawing benefits and ultimately reduce the total value of their pension. “Out of 100 teachers who are still teaching at 55 years old, the median state assumes that 65 will retire by their 60th birthday, and only 8 will remain teaching until they reach age 65.”

The authors of the study urge for states and school districts to reconsider if it’s in the public’s best interest to have a program in place that pushes veteran teachers out of the classroom. Many states have pension plans for teachers in place with rules “more rigid than Social Security” and a less formulaic structure would better aid teachers in making retirement decisions.

Several suggestions are laid out for improving not only the pension plans for teachers, but also the percentage of teachers that actually receive the full benefits of their retirement plan. Such as shortening the vesting period and creating hybrid plans that combine traditional pension plans with 401K-like components.

While developing a “perfect” pension plan that works for every school district and every teacher might not be possible, the study reveals that a reevaluation of such plans for all states is long overdue.

 

Article by Joel Stice, Education World Contributor

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