Though widely regarded as a perk, the report found pensions do little to attract or retain new talent.
After graduating from college in 2008, Tamara Hiler spent three years teaching 7th-grade science and health at the Johnnie Cochran Jr. Middle School in Los Angeles, California, as a Teach for America corps member.
When she left the teaching profession three years later, Hiler says, she didn’t know that she was not yet vested in the state’s pension plan, which requires teachers to be employed for five years before they’re vested. By leaving after three years instead of five, she lost out on $11,000 in employer contributions.
“I had no idea,” she says. “I didn’t even think about my retirement until later. The only thing I was able to recoup is the money I paid in.”
As fate would have it, researching teacher pensions was one of Hiler’s first assignments at Third Way, a non-partisan social policy think-tank in Washington, where she’s now a senior policy adviser. And it was only then, she says, that she realized what had happened.
The story is not unique to Hiler. In fact, more than half of teachers do not receive any employer pension benefits because they leave before they are eligible, according to a new report published in EducationNext, which analyzed each state’s teacher pension plans and projections.
The promise of a pension that provides a monthly financial windfall after retirement and until death has historically been touted as a perk of the teaching profession. Nine out of 10 teachers participate in a pension.
But the authors of the EducationNext report found that pensions do little to attract new talent and even less to retain it. In fact, the opposite is true, they argue: States depend on the constant turnover to keep pension costs down, and pension rules are often to blame for pushing out the most veteran teachers as soon as they reach retirement age.
That’s the case for Diane Dotchin, who retired two years ago after spending 34 years as a public school teacher.
“I decided when I was in third grade to become a teacher,” she says. “That’s a little young to be thinking about a pension. It was definitely a calling for me. Then, when I got out of college I liked the idea that there was a pension, but as a 22-year-old, we weren’t very financially literate.”
Dotchin began her career as a music teacher in Massachusetts, where she worked for nearly a decade before being laid off just six months shy of being vested. After that, she moved to Vermont, where she taught music for 13 years – long enough to be vested, but not long enough to reach peak benefits. She moved once more, this time to Florida, where she taught first and second grade for 11 years, once again, long enough to be vested but not long enough to qualify for top benefits.
As a result, her pension is worth far less than those of many of her former colleagues, who stayed in one state for decades.
“It’s really obsolete thinking that people are going to stay and teach in one place their whole lives,” she says.
The report highlights this exact point, finding that just one in five teachers stay in education long enough to receive full benefits at retirement. In Minnesota, for example, 50 percent of teachers are vested in a pension plan, but only 3 percent break even and none reach normal retirement age.
“While plans rely on all teachers contributing to the pension plan, they count on only having to pay full benefits to the relatively few veterans who stay in the same field, in the same state, throughout their career,” Aldeman and Robson wrote.
A major part of the problem is that pensions are expensive. According to the report, roughly 1 in 10 dollars spent on education nationwide goes toward teacher retirement benefits. Pension contributions amount to 17 percent of a teacher’s salary – higher than in any other profession – and those amounts have increased significantly.
As pension costs soar – states and school districts spend more than $50 billion each year on teacher pensions – teachers are experiencing a rapidly diminishing return on investment. As the report found, pension plans’ unfunded liabilities mean that 70 percent of contributions go toward debt payments, not future benefits.
“A close look at the financial assumptions that undergird [state] plans shows that the states themselves don’t believe these incentives are effective at retaining teachers,” Aldeman and Robson write. “In fact, they count on high rates of teacher turnover in order to balance the books.”
States need to stop using pensions to incentive the profession, they argued.
Despite the pitfalls, however, the idea of a pension still seems to hold sway with young graduates and professionals, even if they aren’t initially drawn to the profession explicitly because of the potential to earn one.
“I knew from the time I was 11 or 12 that I wanted to be a teacher,” says 21-year-old Abby O’Connell, who will graduate from Framingham State University in Massachusetts on Sunday, with a bachelor’s degree in English and plans to be a high school English teacher. “But I began thinking about it more when my mom would say things like, ‘Think about the pension.’ So it played into my decision in that sense.”
O’Connell, whose mother retired in January after working as a school nurse for nearly two decades and who collects a pension, spent the last year student teaching in Quincy, Massachusetts, and is certified to teach middle and high school English.
“I love high school kids,” she says. “I genuinely laugh every day and I have fun. The way I look at it is [a pension] will help me in the long run, obviously, so it kind of sweetens the pot.”
In recent years, underfunded employee pensions have contributed significantly to states’ ability to close budget shortfalls, specifically when it comes to education and it’s often to blame for the list of big-city school districts around the country that are chronically broke.
The Chicago Public Schools, for example, reportedly has enough cash to complete the current school year but the system is still short hundreds of millions of dollars needed to make a pension payment due at the end of June.
Just last week, residents in Connecticut began pushing back against state officialswho are reportedly mulling plans to shift hundreds of millions of dollars in teacher pension costs onto municipalities. The plan comes as Connecticut’s annual contribution to the municipal teachers’ pension fund is expected to grow six-fold between now and the early 2030s, according to a 2015 studyprepared by the Center for Retirement Research at Boston College.
Pensions are also being blamed for significantly curtailing the amount of money states are spending on higher education. From 2000 to 2016, public universities lost 25 percent of their state funding per student, nearly $10 billion, as tuition and student debt skyrocketed – a trend that a new report from the Manhattan Institute places squarely on the back of growth in spending on public-worker pensions.
“So much of the pension conversation you hear about today is about state solvency and the financial angle,” Third Way’s Hiler says. “But this isn’t actually just about a states’ ability to pay back their teachers. It’s affecting real teachers’ retirements and for many teachers they are getting the wool pulled over their eyes about their retirement.”
She continued: “I wish there was a more authentic conversation about what is going on because it’s not good for states and it’s not good for teachers.”