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.
Say you're a top-performing senior majoring in chemistry at Lawrence or Ripon. You're thinking about becoming a high school science teacher. Would you prefer a $35,000 salary with two pensions and health care benefits in retirement, or would you rather have a 25% higher salary and benefits similar to those your friends going into the private sector receive? Odds are you'd prefer the latter ? especially if, like most young grads, you realize the vast majority of people do not have a 30 year career in one profession these days. You'd rather have more cash to pay down students loans and make your own decisions about how to plan for retirement.
Yet most teacher compensation systems look like the first option. According to an oped in today's Wall Street Journal by the University of Arkansas' Bob Costrell, for every dollar Milwaukee teachers receive in salary, the public is spending another 74 cents on gold-plated benefits ? almost three times the cost of benefits in the private sector. The cost of those benefits, which are skewed dramatically in the direction of older teachers close to retirement, lowers starting salaries and takes choices away from workers.
This tradeoff between benefits and salary doesn't come up much in our discussions of teacher quality, but it should. Most young workers are not attracted by low starting salaries and the faint promise of retirement benefits long into the future. The growing mobility of workers argues for
As Bianca noted yesterday, legislators in Ohio are pushing major changes to the collective bargaining rights of public sector unions in the state, among them teacher unions. Many of the proposed changes, like eliminating step-and-lane salary increases, would be very positive.
One change struck me as odd among the proposals: a ban on districts paying more than 80% of teachers' health care costs. I get where the proposal is coming from ? when state and local tax coffers are full, politicians (school board members among them) love to win points with unions through huge giveaways to teachers. It's not a response to demands in the labor market, but blatant vote mongering. We see the fruits of these popular but irresponsible moves when tax revenues dry up.
If onerous state mandates like step-and-lane are removed, one hopes some Ohio districts will step up to develop better, more effective human capital policies that drive student achievement and attract high performing teachers. What if the part of the labor market those districts target demands benefits covering 85% of health care costs in exchange for smarter accountability and better instruction? Why tie districts down in new ways while cutting old mandates?
Perhaps the bill's sponsors feel like this is the best tool they have at the state level for reining in exploding benefits costs. I can appreciate that. But in the end, local control in the US needs to be re-examined and re-invented. If school
- Stretching the School Dollar
- Common Core Watch
- Ohio Gadfly Daily
- Board's Eye View
- Choice Words
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.