Teachers Deserve Fair, Portable Retirement Plans
We know having a high-quality teacher in every classroom is the single most important in-school factor affecting the academic success of our students. There are many strategies that help attract and retain great teachers; one of the most critical is teacher compensation, which include retirement benefits.
Yesterday, the National Council on Teacher Quality (NCTQ) released an important and extensive report on "How [the] Existing Teacher Pension Systems are Failing Both Teachers and Taxpayers." The problems with today's teacher pension plans and the need for reform could not be clearer. StudentsFirst, joined by experts and other advocacy organizations around the country, has been calling for comprehensive pension reform.
Unfortunately, the topic is so complex that even reform-minded policymakers tend to only focus on the size of the unfunded liability and rarely consider the mobility and equity problems these plans create for teachers, regardless of whether the plan is fully funded.
Today's workforce is more mobile than ever, and traditional defined benefit plans do very little to support 21st Century teachers. These plans treat teachers unfairly, create retirement insecurity, limit career mobility, and push teachers into retirement - often before they are ready to stop teaching. Defined benefit plans "back-load" benefits, meaning they lock teachers out of a significant portion of their retirement savings for the first several years of their career. These plans then lock teachers into the profession, sometimes for longer than they would prefer, by requiring them to stay in the same state or district for the remainder of their career to be eligible to receive full benefits.
Portable plans like defined contribution plans (commonly referred to as 401k plans) or cash-balance plans, work much better. They address the structural issues that lead to the underfunding and don't disadvantage new and mobile teachers. Cash-balance plans, which are similar to 401k plans, provide teachers with individual retirement accounts. Yet, a minimum rate of return is guaranteed by the state or the district, which protects the teacher's retirement account from swings in the market. To learn more about cash-balance plans, visit www.dol.gov/ebsa/FAQs/faq_consumer_cashbalanceplans.html
As the underfunding of these existing pension plans continues, the "reforms" being enacted by states only make the retirement environment for veteran and novice teachers worse. For example, NCTQ found that teachers must stay in the career for an average of 6.5 years before they can access employer- contributed retirement benefits. Other actions states take to limit underfunding also hurt teachers. These steps, often touted as reforms, include reducing the cost of living increases for teachers who have already retired, raising the age by which teachers can retire and receive full benefits, and reducing the overall benefit level a teacher is eligible to receive upon retirement.
StudentsFirst agrees with NCTQ that this type of tinkering by states is occurring at the expense of teachers and avoids the type of real reforms that would put states, districts, teachers, and taxpayers on much firmer ground.
Teachers deserve the same retirement options afforded to other career professionals. They should be rewarded for their vital service no matter how many years they stay in the profession, and their retirement benefits should not be susceptible to the types of cuts states are enacting right now. This kind of stability can be gained by allowing teachers to make defined contribution plans their primary retirement plan or if states convert their back-loaded defined benefit plans to cash-balance plans. StudentsFirst urges states to give teachers these kinds of options.
The unfunded liability of pension plans across the country is putting legislatures in crisis mode. But the problems with these plans are systemic. If substantive changes are not made soon, school districts will have less money available for teacher salaries and classroom instruction. Fortunately, there are steps states can take to make this situation better for taxpayers and most importantly teachers and students. You can find out more about our stance on teacher pension reform by clicking on this link: http://www.studentsfirst.org/ac-sw_pension_reform.