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Create Responsible Pension and Benefit Programs

Strategy 3.4: Create pension and benefit programs responsibly.

Recognizing that today's district pensions and other benefits are not sustainable and contribute to a looming fiscal crisis that could compromise instruction, StudentsFirst is committed to pension and benefits reform.

The first step in addressing the problems surrounding pensions and benefits is to acknowledge that when constructed as defined benefit plans with no (or insignificant) employee contribution, these plans place enormous fiscal strain on states and school districts. Pension and benefits for public service employees are pushing states across the country toward extreme fiscal hardship. States have not been responsible with their spending and have failed to exercise discipline in meeting budget obligations. Conservative estimates of unfunded pension liabilities today top $500 billion, with individual states like California and Illinois facing at least $100 billion and $50 billion plus in unfunded obligations, respectively. One study estimated the unfunded pension liability for public school teachers across the country to be a trillion dollars. Without question, the systems in place today are not sustainable and need to be revamped.

The second step is to realize that the current pension structures actually discourage an effective teacher corps. Teachers entering the workplace today have little expectation that the defined-benefit pension and benefit plans in place now will survive their tenure in the profession. They know the system is broken, but would like the opportunity to contribute to a retirement plan together with their employer in a way that does not tie them to one school district for their entire career. As such, pension reform in the education sector must allow for employee portability. Typically, teacher pensions are not portable, so teachers who leave one school district for another before retirement end up forfeiting significant pension wealth. This just simply does not reflect current trends in the job market where people desire the freedom of employment mobility.

The current approach to teacher compensation and pensions also ends up excessively rewarding longevity. A common scenario has teachers more than doubling their pensions by staying in the classroom an additional three to five years. These policies encourage some teachers to stay in the classroom, regardless of professional motivation, so they can max out their pensions — producing a negative impact on students.

Fulfilling our promise to educate our children and prepare them for the world they will inherit requires responsibly managing our promises to public employees and retirees. States must honor their existing obligations to defined-benefit pension plans and should make every effort to fully fund liabilities on an actuarial basis. At the same time, states must avoid making promises they cannot afford to keep. For this reason, states should move from defined benefits to retirement plans that are more sustainable and can be immediately accessed by all teachers. This movement reflects current economic best practice and is better aligned with what new teachers actually want.