It’s time to tackle the teacher pension morass
Thursday, March 20, 2008Written by: Uncle Charley
Amid all the CAP4K hoopla, what about this study on the Denver Public Schools Retirement System that came out Monday from the Donnell-Kay and Piton foundations? While everyone is singing kum-ba-yah about the innovation school bill and the governor is unveiling his bipartisan plan, even the tiniest hint of teacher pension reform seems like the equivalent of bringing partisan political flyers to a family reunion (i.e., a great way to start a heated argument).
Nevertheless, there are some significant findings that cannot be ignored. Most remarkable from the joint study is the graph on page 8, which shows the profitability of retirement skyrocket between a teacher’s 20th and 22nd year, climb steadily up to year 30, then plummet.
One of the study’s co-authors summed it up well in the Denver Post:
“What we found is that if you are an employee who doesn’t last for 25 years, the pension doesn’t do you that much good,” said Tony Lewis, director of the Donnell-Kay Foundation.
A system that makes employees wait that long to get lucrative benefits may not be attractive to workers when the workforce tends to be highly mobile, the study found.
The findings for Denver are consistent with the research on five states’ teacher pension systems highlighted recently in Education Next:
Teachers typically earn relatively little in the way of pension benefits until they reach their early fifties, when much larger benefits start to accrue. The system therefore pulls teachers to “put in their time” until then, whether or not they are well suited to the profession. Beyond that point, the pension system quickly begins to punish teachers for staying on the job too long, pushing them out the door at a relatively young age, often in their mid-fifties, even if they are still effective teachers. These “pull-push” incentives are embedded in the patterns of pension wealth accumulation over teachers’ careers, patterns that feature dramatic peaks, cliffs, and valleys that can greatly distort work decisions for no compelling public-policy purpose.
So what’s the solution? The new DPS study echoes the call of Dr. Marguerite Roza “to
provide more generous, portable, up-front retirement benefits as a means of recruiting younger
teachers who expect to change professions multiple times throughout their careers.”
The Education Next piece is more specific in its advocacy for reforms that bring neutrality, transparency, portability, and sustainability to teacher pensions. Knowing that unions exert a lot of political pressure against Defined Contribution proposals, the authors also promote the middle-ground proposal of “cash balance (CB) plans”—in which guaranteed retirement returns are more closely and consistently tied to employer contributions.
I’ve never seen CEA rail against cash balance plans, so maybe we could hope for another kum-ba-yah moment around teacher pension reform—first in Denver, and then statewide for PERA. On second thought, maybe I’d better not press my luck.
