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Pension Portability: New Focus on Why 'You Can't Take It With You'

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By Nancy Mathis

After being a back-burner issue for decades, pension portability--the idea that teachers who switch jobs from one state to another should not have their retirement benefits penalized--may be edging its way to the forefront of policymakers' agendas.

Supporters of pension portability say the issue will become increasingly critical as states try to cope with future teacher shortages, and teachers themselves demand greater "It is an issue that has been around for a long time, but is just now gaining the attention of public-policy leaders that it needs and deserves," said Michael Edwards, Congressional relations manager for the National Education Association.

Currently, no state allows teachers to withdraw both their contribution and the state contribution to the pension fund when departing from the system.

Teachers also are penalized, critics contend, through long vesting periods, which frequently amount to a 10-year wait before they can become eligible to participate fully in a state's retirement plan.

Fairness and Market Forces

In addition, states often either limit the amount of previous experience that teachers can transfer with them or exclude it altogether.

The results of these practices are the same, according to experts on portability: Teachers who move from one state to another lose a signficant portion of their retirement benefits.

Bernard Jump Jr., chairman of the department of public administration at Syracuse University and an expert on pensions, has calculated that teachers who spend five years in one state and 30 years in another earn 11 percent less in benefits than teachers who spend 35 years in one state.

"Therefore, it is not farfetched to envision cases where teachers who have changed jobs several times conclude long teaching careers with a pension income that is minuscule by any reasonable standard," Mr. Jump concluded in a 1986 report prepared for the Carnegie Forum on Education and the Economy.

Mr. Jump bases his arguments for portability on fairness. Some policymakers are basing theirs on the realities of the market place.

The governors, in their 1986 report, "Time for Results," said that the lack of pension portability tends "to block market forces that might resolve shortages and surpluses."

One nga task force recommended that the state chief executives "collectively review reciprocity agreements, or take other steps to recognize the work an educator has done elsewhere."

Moving to Shortage Areas

The lack of portability, said Linda Darling-Hammond, director of the education and human-resources program for the rand Corporation, is "one of the three or four barriers to mobility." Faced with a large financial loss when forced to move to another state, some teachers leave the profession altogether, she said.

Ideally, supporters contend, the ability of teachers to move their accrued pension funds from one state to another would remove financial obstacles to mobility. Teachers would then be free to move to states where shortages are acute.

Jewell Gould, a research analyst with the American Federation of Teachers, noted that nearly one-half of the teaching force is expected to retire within five years, and that colleges of education are producing only half the number of graduates that they were 10 years ago. Yet, he said, the nation needs roughly 120,000 new teachers each year.

States that develop pension portability will be using it to attract teachers to their locale, Mr. Gould predicted.

The freedom for such mobility could also be another enticement to people considering joining the profession, the governors' report noted. Raising salaries, it said, is just one facet of a comprehensive program to increase the number of people entering the field.

According to Mr. Edwards, pension portability is "a very important step toward the professionalization" of teaching, in that it gives educators some control over their careers.

For many years, supporters note, college faculty members have had the option of participating in annuity plans that follow them from job to job.

Lifting the 'Golden Anchor'

Awareness of the portability problem is hardly recent. In 1951, the National Education Association issued a report recommending such pension-fund changes. And in 1963, a federal Advisory Commission on Intergovernment Relations reached a similar conclusion regarding all public employees.

The inaction since 1951 stems mainly from the fact that the issue lacks an aroused constituency, Mr. Jump said, and states have not seen it in their self-interest to act.

"Employees haven't been sufficiently interested until recently to push all that hard," he said. "Second, it's not the kind of benefit employers are eager to offer. They are, in effect, saying this will make it easier for you to leave their employment."

In his 1986 report, "Teacher Mobility and Pension Portability," Mr. Jump refers to the use of retirement systems as "golden anchors" that keep teachers chained to the state.

But, such anchors may still make political and policy sense to some lawmakers.

"The question," said John Meyers, an analyst with the National Conference of State Legislatures, "is why would legislators be interested in providing more portability when their interest is to retain teachers in their own states?"

"Providing easy opportunity for portability is not their issue," Mr. Meyers said.

Mr. Jump of Syracuse conceded that it may not yet be the public's issue either. Such portability plans are costly, he noted, and taxpayers may not be willing to foot the bill.

In Florida, where 10,000 new teachers are needed each year, the debate over portability was dropped when legislators were informed of the costs that would be involved, said John Ryor, executive director of the Florida Teaching Profession, an affiliate of the n.e.a.

Complicating Factors

The sheer variety of retirement systems also complicates the problems involved in achieving portability. There are nearly 90 systems opel23lerated either by states or local governmental entities.

According to Mr. Jump, states are naturally reluctant to be the first to allow portability, for fear of having their teaching force drained by other states.

The Syracuse scholar's report two years ago outlined several possible pension reforms, such as full and immediate vesting, which would give teachers a claim on retirement funds; indexing benefits as a protection against inflation; and full portability of past years of service.

It also suggested reciprocal agreements between states providing for full portability of past service credits, as well as the transfer of pension-plan assets.

Michael Kahn, an n.e.a. research analyst, said the union has urged greater uniformity among retirement plans. Such uniformity, he said, would allow states to enter into transfer agreements similar to those in effect in the provinces of Canada.

Canadian teachers can transfer from one province to another with full portability of retirement benefits, Mr. Kahn said.

But others contended that the ability to transfer both the employer's and employee's accrued assets "would be a nightmare."

Bruce Hineman, executive secretary of the $19-billion Texas Teacher Retirement System, said that determining a system's future withdrawal rate is a crucial component in maintaining the fund's soundness.

Full portability would make it difficult for actuaries to compute that rate, he said. At present, they as4sume that the state contributions will remain stable.

"The benefit structure is defined to attract and retain teachers in Texas," said Mr. Hineman.

He added, however, that he supports shorter vesting periods and plans to ask the Texas legislature to reduce the state's vesting time from 10 years to 5.

Small Federal Role

Periodically, members of Congress have introduced a measure called the "mobile teacher assistance act" that would help teachers pay for portability transfers into other state systems.

However, the cost to the federal government and the bill's prospect of intruding into states' internal affairs have kept it in committee.

This session, the "pension portability act," a measure that would allow all employees to withdraw pensions upon leaving an employer and transfer the money into a special retirement account similar to an ira, was attached to another bill and is pending before a Senate committee.

The bill's fate is uncertain, but n.e.a. officials said they do not expect the Congress to take a very active role in the portability issue.

"If something is going to happen, it's the leaders in the states that can make the quickest and most substantial change," said Mr. Edwards of the union. "Clearly, it is in the states' interests and the national interest to develop a pool of teachers that is truly mobile."

Although educators appear to be pleased with the attention the issue is receiving, no one is expecting anything to happen soon, other supporters agreed.

"It's not an easy situation to remedy," said Mr. Edwards.

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