teacher pensions and charter schools chad aldeman september 10, 2015
TRANSCRIPT
Teacher Pensions and Charter Schools
Chad Aldeman September 10, 2015
Teacher pension plans are poorly suited to charter schools
• Pension plans suffer from high, rising, and volatile costs
• Those costs trickle down and crowd out other spending (which
particularly harms small schools)
• Teachers pay the ultimate costs: lower base salaries and poor
retirement security
Pension costs now eat up more than $1,000 per pupil
Pension costs are not only rising, they’re also volatile
1978
-79
1980
-81
1982
-83
1984
-85
1986
-87
1988
-89
1990
-91
1992
-93
1994
-95
1996
-97
1998
-99
2000
-01
2002
-03
2004
-05
2006
-07
2008
-09
2010
-11
2012
-13
2014
-15
0
5
10
15
20
25
Example: New York State Teachers' Retirement System Employer Contribution Rates (Percent of Salaries)
Above 20% in the early 1980s A low of
0.36% in the early 2000s
Rising again, it was 17.5% in 2014-15
Most of the cost increases are going toward debt, not benefits
Worse, pension plans leave the majority of teachers without secure
retirement benefits (especially charter school teachers).
Pension plans are heavily back-loaded…
25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000Teacher Pension Wealth, By Age
Age
Very little retirement savings for early- and mid-career teachers
Pension wealth spikes
Pension wealth de-clines
But the teaching workforce has become more mobile…
0 4 8 12 16 20 24 28 32 36 40
-1%
0%
1%
2%
3%
4%
5%
6%
7%
Mode: 15 years
1987-88
0 4 8 12 16 20 24 28 32 36 40
2007-08
Teacher experience as share of workforce
And the *charter* teaching workforce is even more mobile…
0-5 6-10 11-15 16-20 21-25 26-30 30+0%
10%
20%
30%
40%
50%
60%
Teacher Experience Levels By Sector
Charter schools Tradititional public school
Years of Experince
The end result: The vast majority of teachers will fail to qualify for secure retirement benefits
Most states require 5 years of service for a teacher to qualify for a pension. 17 states require 10 years.
Long vesting requirements
Minimal benefits for mid-career teachers
Portability penalties
In the median state, teachers must wait 25 years before their pension is worth more than their own contributions and interest.
A 30-year teacher who splits her career between two states can lose more than half her pension wealth.
These limitations make Social Security critical for teachers
Benefits of Social Security to workers
Portable
Inflation-protected
Progressive benefit formula
Low risk
Lasts a lifetime
Social Security covers 160 million American workers (over 95% of
all workers)
Over 6.5 million government
workers, including 1.2 million teachers, remain uncovered
But many states have chosen not to offer teachers Social Security benefits
Nationwide, 40% of public school teachers are not
covered by Social Security
How can policymakers fix these problems?
At minimum, states could give teachers choice over their retirement plan
• There are multiple ways to provide simple, transparent retirement
benefits
• Any type of retirement plan can incorporate important protections
for workers:
• Adequate savings and benefit accrual rates.
• Professionally managed, low-fee investments.
• Annuities upon retirement.
For example, a cost-neutral cash balance plan would benefit most teachers
25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
0
0.2
0.4
0.6
0.8
1
Example from Louisiana: Cash balance plan (green) versus the current pension plan (red)
A very small minority would be worse off.
Percentage of teach-ers remaining
How can I learn more about this issue?
For more information, visit:
Follow us on Twitter@ChadAldeman@TeacherPension