Ideas for Cutting Teacher Pension Costs for States, Charters

By Sean Cavanagh — October 25, 2011 1 min read
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Lowering the the costs of state pension programs for teachers and other public workers is highly desirable, but it’s also messy, and the savings are not immediate, notes a new report, which highlights state and local attempts—many of them controversial—to change those retirement plans.

Published by the Thomas B. Fordham Institute, the report also looks at charter schools’ often-complicated efforts to create low-cost pension systems.

Numerous states recently have approved laws aimed at lowering their pension bills, in an effort to reduce state spending and lower unfunded liabilities. In most cases, those steps resulted in teachers being asked to pay more.

Fordham’s report, “Halting a Runaway Train: Reforming Teacher Pensions for the 21st Century,” examines a few state efforts to find savings and the complications they faced. Alaska switched from a “defined benefit” pension system, in which enrollees receive a promised return, to a “defined contribution” model, generally a 401-k-style approach, in which returns are tied to market performance; Utah went with what the authors describe as more of a hybrid approach.

While charter schools in many states have freedom to operate outside of certain state regulations, that’s often not the case when it comes to designing their own teacher-pension systems, the report says.

Just 16 of 40 states with charter laws allow charters to opt out of their state retirement systems—which are typically defined-benefit plans, the authors say. In states that do give charters more freedom in this area, some schools have joined their states’ plans, others have offered their own alternatives, and some have offered no retirement plans at all (see a previous post on this subject).

The report highlights some charters’ experiences in choosing plans or crafting their own. One charter, for instance, was able to save money on its pension system and channeled part of that money toward teacher bonuses for student achievement.

A version of this news article first appeared in the State EdWatch blog.