Teaching Profession

Structure of Pension Plans May Warp Teacher Market, Research Says

By Michele McNeil — November 14, 2007 4 min read

At a time when millions of baby-boomer teachers are nearing retirement, their decisions on when to leave the classroom are guided more by the early retirement incentives built into state pension plans than by educational considerations, according to new research by a pair of economists.

Those pension formulas devised by state legislatures encourage teachers to retire in their mid-50s, while penalizing them for teaching longer than that, states an article appearing in the Winter 2008 issue of the magazine Education Next.

The research by Robert M. Costrell, an education reform and economics professor at the University of Arkansas, and Michael Podgursky, an economics professor at the University of Missouri at Columbia, calls attention to the long-lasting consequences from what they view as outdated teacher pension systems. These systems, though they vary from state to state, have a common, fundamental flaw, the researchers say: They reward teachers who stay in the same job for 20-plus years, penalize them for teaching too long, and make it difficult for teachers to move to different jobs.

The researchers advise that states must attack the problem head-on. If not, they warn, the teaching supply will be disrupted as more teachers retire than are hired; state and local district budgets will be strapped now that it’s time to start paying these lucrative pensions; and an intergenerational conflict will intensify between younger teachers who may get short-changed to pay for retirements and the veteran teachers who are the beneficiaries of this system.

“It is a real educational issue, and it’s going to force harsh trade-offs,” Mr. Costrell said, noting how retirement benefits are eating up a greater share of school expenditures.

The problem also will plague states and districts trying to lure private-sector professionals into the teaching profession, the researchers said, especially those in mathematics and science, which are because they are highly compensated and in demand.

“The young teachers do not benefit from this system, but it’s going to be paid for out of their salaries,” Mr. Costrell said. “And, it’s going to make it more difficult to recruit mid-career switchers.”

‘Push and Pull’

The researchers describe a “push and pull” problem that results in giant spikes in retirement wealth that can happen at certain ages, or with certain years of service. The decision to retire at any given time can mean the difference in hundreds of thousands of dollars over the span of a teacher’s retirement. The researchers explain it by using examples from two states with different formulas.

In Ohio, a teacher with 24 years of service who wants to retire at age 49 gets a pension worth $315,000, but staying just another six years will escalate the value of the pension to $1 million. In Arkansas, a 53-year-old teacher with 28 years of teaching experience may want to keep teaching—but each year that teacher stays on the job, the teacher forgoes a year of pension payouts, and never recoups that amount. Still the teacher and school district keep contributing 20 percent of the teacher’s wages into the overall pension fund.

Though there is little empirical evidence to indicate just how these pension systems are affecting the teacher labor force, the researchers say existing studies indicate teachers respond to these kinds of incentives and disincentives.

“These are large sums of money, and you can’t be indifferent to that,” Mr. Costrell said.

Teacher retirement plans have not kept up with pension changes in the private sector. Most private-sector retirement plans are defined-contribution plans, in which workers and their employers contribute a certain percentage of wages to a retirement fund, which can transfer from job to job. There’s no guarantee of any regular retirement payouts or monthly checks.

That’s far different from teachers’ “defined-benefit” pension plans, in which retired educators are guaranteed a set amount of money throughout retirement, and in which contributions fund the overall pension system and are not tied directly to individual retirement checks.

The defined-benefit structure has created significant unfunded pension liabilities in teacher systems across the country, made worse when legislators respond to pressure from teachers’ unions and create early-retirement incentives that translate into several additional years of pension payouts by the retirement funds. Often, these changes are made when the stock market is roaring and the teacher retirement funds look richer, prompting legislators to sweeten the retirement pot for teachers, the researchers said.

“It’s easy to give away [such benefits],” said Mr. Podgursky. “But once you giveth, you can’t take it away.”

The solutions are complicated, and legislators have only nibbled around the edges. Some states, including Arkansas, have created plans in which teachers can stay in the classroom and collect their pensions, which are deposited in an individual retirement account until they retire. Some states, such as California, allow teachers to come back to their profession after a break—12 months, for example—or to work part time and not accrue additional benefits.

“There is a tendency to come at this in a piecemeal way,” Mr. Podgursky said. “Let’s re-examine this thing from top to bottom. That’s what we really think states need to be doing.”

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Recruitment & Retention Webinar
Recruiting and Retaining a More Diverse Teaching Workforce
We discuss the importance of workforce diversity and learn strategies to recruit and retain teachers from diverse backgrounds.
Content provided by EdWeek Top School Jobs
Student Well-Being Webinar Boosting Teacher and Student Motivation During the Pandemic: What It Takes
Join Alyson Klein and her expert guests for practical tips and discussion on how to keep students and teachers motivated as the pandemic drags on.
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Student Well-Being Webinar
A Holistic Approach to Social-Emotional Learning
Register to learn about the components and benefits of holistically implemented SEL.
Content provided by Committee for Children

EdWeek Top School Jobs

Customer Support Specialist, Tier 1
Portland, OR, US
Northwest Evaluation Association
Customer Support Specialist, Tier 1
Portland, OR, US
Northwest Evaluation Association
Customer Support Specialist, Tier 1
Portland, OR, US
Northwest Evaluation Association
Principal
Meredith, New Hampshire
Inter-Lakes School District

Read Next

Teaching Profession Teachers Are Stressed Out, and It's Causing Some to Quit
Stress, more so than low pay, is the main reason public school teachers quit. And COVID-19 has increased the pressure.
7 min read
Image of exit doors.
pavel_balanenko/iStock/Getty
Teaching Profession Opinion Should Teachers Be Prioritized for the COVID-19 Vaccine?
Not all states are moving teachers to the front of the vaccination line. Researchers discuss the implications for in-person learning.
6 min read
Teacher Lizbeth Osuna from Cooper Elementary receives the Moderna vaccine at a CPS vaccination site at Roberto Clemente High School in Chicago, Ill., Thursday, Feb. 11, 2021.
Chicago public school teacher Lizbeth Osuna receives the COVID-19 vaccine at a school vaccination site last week.
Anthony Vazquez/Chicago Sun-Times via AP
Teaching Profession Chicago Teachers Approve School Reopening Plan: ‘We Got What We Were Able to Take’
Chicago Teachers Union members have voted in favor of a reopening deal, signaling that in-person classes can resume Thursday as planned.
Hannah Leone & Katherine Rosenberg-Douglas
4 min read
Chicago Public Schools CEO Janice Jackson speaks during a news conference at City Hall in Chicago on Feb. 7, 2021. The Chicago Teachers Union has approved a deal with the nation’s third-largest school district to get students back to class during the coronavirus pandemic, union officials announced early Wednesday, Feb. 10, 2021.
Chicago Public Schools CEO Janice Jackson speaks during a news conference at City Hall in Chicago on Feb. 7. The Chicago Teachers Union has approved a deal with the nation’s third-largest school district to get students back to class during the coronavirus pandemic.
Brian Cassella/Chicago Tribune via AP
Teaching Profession 1 in 5 Educators Have Been Vaccinated, NEA Survey Finds
About one-fifth of teachers in the nation's largest teachers' union have had a COVID-19 vaccine; another 18 percent have scheduled a shot.
3 min read
Penny Cracas, right, with the Chester County, Pa., Health Department, administers the Moderna COVID-19 vaccine to Robert Dando, a school nurse, late last year in  West Chester, Pa.
Penny Cracas, right, with the Chester County, Pa., Health Department, administers the Moderna COVID-19 vaccine to Robert Dando, a school nurse, late last year in West Chester, Pa.
Matt Slocum/AP