Don't Throw out the Baby, the Debate on Teacher Pensions Continues
As policy makers search for budget cuts in tough economic times, increasingly their target has become public employee pensions plans, specifically defined benefit plans that are common in most states for teachers and school employees.
Policy makers have consistently underfunded plans and now want to make changes or cut the programs altogether to save money. We need to ensure that changes made are research based, do not cut current benefit levels and are mindful of attracting and keeping effective teachers.
Otherwise, not only do we risk the possibility of reneging on our societal obligations to current employees, we risk the chance of pushing people away from prospective careers.
In September, the Center for American Progress released two reports on teacher pensions.
Miller's report focuses on redefining the pension debate and includes several ideas that are not present in current policy reforms.
As a facet of compensation, teacher pension policy should be subject to the outcome- and equity-oriented workforce goals of broader teacher reform programs. Teacher pension policy should help attract to teaching especially promising collegegraduates and career-changers—candidates with combinations of cognitive and noncognitive characteristics known to predict the future effectiveness of teachers.
Weller finds that there are cost savings and advantages to "bending the curve" through reforms in deferred compensation plans. He also points out that there is significant chance of risk involved when moving from one plan to another or eliminating future enrollees from a plan.
The results—based on a substantial economic and actuarial research related to pensions, teacher compensation, and teacher effectiveness—suggest that states and localities face substantial risks with respect to public-sector productivity when switching from defined-benefit pensions to alternative retirement benefits.
A recent review of the two reports is out today, and finds fault with several of the claims made by both Miller and Weller. Despite the faults, the review finds there are some key findings that policy makers can use when making informed decisions regarding teacher pensions.
Teresa Ghilarducci, Professor of Economic Policy Analysis at the New School for Social Research and Director of the Schwartz Center for Economic Policy Analysis, reviewed both reports.
Ghilarducci's review was part of the Think Twice Review Project by the National Education Policy Center with funding from the Great Lakes Center for Education Research and Practice.
Her report concludes:
The costs of changing pension systems may be greater than the potential gains; our ability to measure teacher productivity remains elusive; the characteristic and historical underfunding of retirement plans is a time-bomb; the ability to attract and retain young, talented teachers remains problematic; and the scant research evidence we have on all these issues indicate that careful and wise deliberation of teacher pension systems has not reached fruition – in fact, it has just begun.
Both reports acknowledge the limited nature of our knowledge in this area and only a small number of acceptable research reports are available. The value of these two reports (which differ in their recommendations) lies in the issues they raise in this still developing area of policy inquiry.
Both reports try to link pension design to teacher productivity and teacher turnover to productivity and the research on this is very scarce. There is no study that isolates the effect of pension design on teacher decisions regarding staying in the profession or work effort.
In short, while reforming teacher pensions may present a cost savings to states or local authorities, there is no evidence that exists which ties pension reform to improving or leveraging the workforce.
What I find most interesting is that both reports and the review focus on the benefits and costs of switching from one plan to another, when in reality most GOP controlled state houses are looking at eliminating pensions altogether for future employees.
I like that both reports, as well as the review, focus on the costs involved with pushing prospective employees away from the profession. This opportunity cost is left unmentioned in the greater pension debate. The real danger in dismantling, or switching plans is the chance that we may limit who can or wants to become a teacher.
At a time when the national focus is moving towards elevating the profession, shouldn't we be discussing ways to draw more people in, instead of pushing them away?
Ghilarducci's review states:
Shifting to a new pension plan in order to save money may prove to have exactly the opposite effect (than intended). Bolstering the current plans may prove the more economical and practical approach.
Buyer Beware and Redefining Teacher Pensions offer different approaches, but there is little evidence presented in either to policy changes.
Buyer Beware cautions against a move from traditional DB plans to a CB plan design because the switch would increase turnover, lower the average age of teachers, and increase training costs. All three effects decrease overall teaching effectiveness in a school district.
So despite the ability to save money by switching from a DB to a CB, there are significant disadvantages in pushing in that direction.
Redefining Teacher Pensions report speculates about the effects of CB plans based on, the report acknowledges, scant literature on the productivity-age-experience profile of teachers’ careers and on the labor supply responsiveness of teachers to elements of pension design.
Although the reports aren't supported by research, the reports are still valuable.
According to Ghilarducci, both reports are valuable in that they bring to light important areas that should be considered when changing pension plans.
- CB plans accrue money faster and are more front-loaded which could attract new, young teachers who don’t plan to stay in the profession.
- DB plans encourage teachers to stick around because they are based on years of service and average of last 3-5 yrs of salary.
These two reports are valuable contributions not because of the proposals they set forth but as flags for the complicated and sometimes counter-productive effects of many current proposals.
This is the type of debate that keeps me awake at night. Not only do I worry that politicians may dismantle current pensions in states across this country for short-term budget fixes, but I increasingly worry about the next generation of teachers.
Most of us didn't choose the career specifically because of the pension or health benefits awarded in many states, but it was an added benefit that made taking a job with low prestige and low salary palatable.
As we debate the future of the middle-class, we cannot and must not lose sight of the debate over teacher pensions. As corporations begin continue to dominate the discussion as to what is income and which type of income should be taxed, I hope that people pay attention to the facts and not get carried away with emotions.
It's easy for those without pensions to point fingers, but we should be thinking about the big picture and using reasonable decisions, rather than ideological talking points.
Policy makers should read the CAP reports, the review, and think about all of the alternatives before jumping to conclusions.
Sometimes making the tough choices means paying for those choices.
Can we afford to throw away the next generation of teachers and middle-class wage earners?
In April, the New York Times ran: Move Public Employees Into 401(k)s?
Ghilarducci answered in the Times with: A Bad Deal for Taxpayers
She stated then:
401(k) plans are bad deal for taxpayers. Dollar for dollar, a traditional pension plan yields more pension benefits than do 401(k) plans because 401(k) management and investment fees are three times higher. And professionals who manage money in pooled pension funds usually get higher returns than workers who manage their own 401(k) accounts. The only clear winners when pensions switch over to the 401(k) plans are brokers and bankers.
And I'll ask again, just who is behind the privatization of America's schools? Brokers and bankers? Pension reform is something we should be talking about, but how we refocus the debate will be challenging.
Endnotes and definitions:
- Redefining Teacher Pensions: http://www.americanprogress.org/...
- Buyer Beware: http://www.americanprogress.org/...
- Ghilarducci's Review: http://www.greatlakescenter.org/...
Most traditional DB programs offer lifetime retirement benefits, based on a formula of years of service, age, and average compensation. In most states, benefits are paid by employers and employees pay a % (some states require no employee share).
Much like how current private plans are administered, 401K style where money is put into an individual account, with employees deciding how the funds are invested and shouldering all the risk..
A hybrid of DB and DC. CB plans still resemble DB programs, but they have the flexibility of DC plans.
This blog post has been shared by permission from the author.
Readers wishing to comment on the content are encouraged to do so via the link to the original post.
Find the original post here:
The views expressed by the blogger are not necessarily those of NEPC.