For Teachers without Social Security, Higher Stakes for Pension Reform

Source: http://oolongiv.wordpress.com

State employees accept a tradeoff: lower salaries for generous pensions. As the economy continues to roil from the aftershocks of the recession, the gain of long-term security from this tradeoff seems even more desirable. Unfortunately, state pension systems are dangerously underfunded, and many states are passing reforms to close the shortfall. While most states have focused their reform efforts on new teachers, some states are making significant changes to the earned benefits of current and retired employees. For teachers without the added safety net of Social Security, these pension reductions cut even deeper.

Rhode Island, for example, recently passed painful but necessary pension reform. In part, the bill freezes the cost-of-living adjustment (COLA) for up to 19 years. Inflation over time means that a retiree’s pension check does not cover the same groceries that it did 10 years ago. The COLA compensates for inflation and ensures that a pension’s purchasing power stays roughly the same. The average retired state employee in Rhode Island earns $52,000 a year in retirement which includes a $33,000 pension and a $19,000 Social Security benefit. According to state actuaries, the purchasing power of this average retiree’s pension would drop from $52,000 to roughly $39,000 before the COLA is reinstated. Even when it’s necessary, pension reform can have serious consequences on a teacher’s retirement security.

For employees who are not in Social Security, the effect of provisions like Rhode Island’s will be devastating. While it’s surprising to many, some state and local governments do not participate in Social Security. In Rhode Island, roughly half of all teachers are not covered by the program. Without the $19,000 Social Security benefit, the average retiree’s $33,000 pension shrinks to $19,000 after 19 years without a COLA. A retired teacher goes from a comfortable retirement to approaching poverty. The National Council of Teacher Quality’s 2011 State Teacher Policy Yearbook lists 14 states which do not participate in Social Security on behalf of their teachers. For teachers in these states, the stakes are even higher for pension reform.

Tagged as: COLA, social sec, Teacher Pension