States Slash New Teacher Pensions

Source: http://goodcents.pocketsmith.com

Sleep-deprived and stressed, I don’t remember a lot from my two weeks of new teacher induction other than filling out stacks of paperwork and being thankful for Chik-Fil-A chicken biscuits to get me through it all. I do, however, vaguely remember signing public employee pension forms. At twenty-two, still wearing my college Birkenstocks, I knew that you were supposed to save for retirement but not much else. States currently face staggering unfunded pension liabilities, and they count on the ignorance or apathy of new teachers when they patch over their pension problems by slashing their benefits. But what they don’t realize are the consequences for teacher recruitment and retention.

Earlier this year, the National Council on Teacher Quality released their annual 2011 State Teacher Policy Yearbook. In the report, NCTQ grades each state on, among other things, their policies to retain effective teachers including their pension policies. Most new teachers don’t choose where to teach based on the generosity, flexibility, or financial health of their state pension system. But some prospective teachers may decide against a career in teaching due to inflexible defined benefit plans, or new teachers may weigh whether to stay in teaching based on the generosity of their future pension check. In 1987, the average teacher had 14 years of experience in the classroom; today, the average teacher has just one year. Benefits that are secure, portable, and fair could play a role in encouraging new teachers to stay beyond the first year. NCTQ’s report demonstrates, however, that many states are trying to fill their empty coffers by siphoning funds away from new teacher benefits.

According to NCTQ, only 14 state pension plans are currently financially sustainable. The rest are either underfunded, operating under overly optimistic or misleading accounting assumptions, or both. States nationwide are reforming their pension plans in response to this crisis. Most states opt to reduce benefits for new teachers for two reasons. First, it is politically savvy to bypass the union outcry against cutting benefits for current members. In many cases, however, strict legal protections also make it difficult to enact reforms that affect current and retired teachers. While substantive reform is possible even in the states with the strongest legal protections—as we describe in our Legal Guide to State Pension Reform— most legislatures aim to sidestep a prolonged legal battle.

Instead, as a long-term strategy to slow their growing liabilities, states limit the number of new participants in the state pension plan. Over the past few years, many states have increased their vesting period, the number of years before a teacher earns a pension upon retirement. Teachers who leave the classroom or the state before they vest do not receive a monthly pension check upon retirement; they can only withdraw their own contributions. In four states, teachers are not even allowed to withdraw their total contributions.

All but three states (Arizona, Minnesota, and South Dakota) make teachers wait more than three years before vesting. Most states have four- or five-year vesting periods. The number of states with 10-year vesting periods, however, is growing. In 2009, nine states had a 10-year vesting period; two years later in 2011, 16 states do. Some states accommodate this long vesting period with a reasonable withdrawal policy: Alabama, for example, allows teachers to withdraw their own contributions, plus interest, if they leave teaching before ten years. Connecticut, on the other hand, has a 10-year vesting period but teachers cannot withdraw their total contribution. Barring significant pension reform that provides flexibility to new teachers, states should at least lower vesting periods so teachers receive the benefits they earn.