Retirement status quo hurts most teachers
Take a look at this graph from Robert Costrell and Mike Podgursky's new report on pensions for the TIAA-CREF Institute:
The blue line is pension wealth accumulated by a teacher under Missouri's teacher pension plan who begins work at age 25. Note that the teacher earns essentially nothing until their 12th year of service and only five figures past their 20th year of service. Over the five years after that, the teacher's retirement wealth increases five-fold.
Lest you think this insanity is particular to Missouri, take a look at neighboring Illinois, where a new law revamping teacher pensions was just passed:
As I've mentioned before, this system can't help but attract highly risk-averse workers to the detriment of others. It creates a situation where the handful of teachers who never leave the profession or work outside the area covered by a given retirement system take money out of the pockets of everyone else. Unless you're one of those teachers, you'd be far better off with a higher base salary and a defined-contribution plan where your retirement wealth increases steadily as a function of your salary.
The Atlantic's Megan McArdle brought this up (and many other issues) in a recent post on teacher turnover. Minimizing turnover has some value; it doesn't deserve to be one of the most important policy priorities in education as it is now.
Costrell and Podgursky get into the effects of this in their policy brief. The status quo incentivizes a host of bad outcomes and behaviors: burnt-out teachers stay longer than they should, workers game their salaries and take jobs they don't want to improve retirement payouts, and people suffer catastrophic losses in retirement wealth if they move or quit teaching. Reforming retirement systems is one change among many that could improve teacher quality and recruitment.
? Chris Tessone
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About the Editor
Bernard Lee Schwartz Policy Fellow
Chris Tessone was a Bernard Lee Schwartz Policy Fellow and the Director of Finance of the Thomas B. Fordham Institute. He has strong interests in governance and education finance, especially teacher compensation and school facilities finance.
June 13, 2013