Current pension plans aren’t helping recruit and retain teachers
86097958 © Liquoricelegs | Dreamstime.com

Commentary

Current pension plans aren’t helping recruit and retain teachers

The data show that public pension offerings may be preventing public schools from providing teaching staff what they really want: higher salaries.

State governments and public schools across the country are worried about a mass exodus of teaching staff due to COVID-19 pandemic-related education hardships and new private-sector opportunities. Last year, a widely distributed survey from RAND corporation found that almost one in four teachers said they were likely to leave their jobs at the end of the 2021 school year. The Wall Street Journal has also recently explored how eager the private sector is to recruit teachers from their classrooms. The Journal reported:

Burned out teachers are leaving the classroom for jobs in the private sector, where talent-hungry companies are hiring them—and often boosting their pay—to work in sales, software, healthcare and training, among other fields.

The rate of people quitting jobs in private educational services rose more than in any other industry in 2021, according to federal data. Many of those are teachers exhausted from toggling between online and classroom instruction, shifting Covid-19 protocols and dealing with challenging students, parents and administrators.

While the number of teachers who quit last year was not as high as some expected, state legislatures around the country are trying to tackle public school teacher recruitment and retention issues in their 2022 sessions.

Teachers’ unions frequently claim that staff exoduses and problems hiring new talent are largely impacted by public pension offerings or lack thereof. The National Education Association’s website argues that pensions “successfully attract people to education as a profession, retain teachers, and provide solid retirement security.” The union also claims a “shift to defined-contribution plans…would exacerbate the teacher turnover and teacher shortage problems.”

But the numbers show that retirement benefit offerings have little to no impact on early and mid-career educators’ decision to leave the classroom. And suggestions that recent college graduates consider pensions a major perk of entering the teaching profession do not align with surveys of college students conducted by Deloitte and LinkedIn.

Furthermore, a February 2022 study from the Sinquefield Center for Applied Economic Research at Saint Louis University found that educators know less about their retirement packages than many unions claim. This could be attributed to the fact that seeing their students succeed, serving their community, or getting a decent paycheck matter much more to them than pension benefits when considering their futures in the classroom.

According to BenefitsPro, the study revealed:

Just under half of the teachers with eight years or less of teaching could identify their retirement plan based on descriptions. Mid-career teachers were correct 55.1% of the time and 62.6% of the late-career teachers could identify their plans.
Less than 20% of the teachers surveyed knew their retirement eligibility age.
Only 2% of those surveyed knew the exact rate of their contribution to their retirement plan.
No teacher surveyed knew the exact rate of their employer’s contribution to their retirement and less than 15% answered within one percentage point of the rate.
69% of the teachers responding said that they will rely equally on both their partner’s retirement benefits and their own.”

When you consider that most teachers must stay in their state’s public school system for 20-plus years to receive their full pension benefits, the argument that public pension plans are a crucial hiring component becomes even less strong. As TeacherPensions.org found in a 2019 report:

“[T]he typical teacher pension plan provides only a small group of long-serving veteran teachers with adequate benefits. For new, young teachers, they must stay at least 28 years before qualifying for adequate retirement benefits. To afford a comfortable retirement, teachers who fall short will have to work longer, save more in their personal accounts, or rely on other forms of income in their retirement years.”

In fact, the data show that public pension offerings may be preventing public schools from providing teaching staff what they really want: higher salaries.

Reason Foundation’s K-12 Education Funding Dashboard looks at US Census Bureau data on state school expenditures going back to 2002. It shows that over that timeframe, 42 states saw benefit spending increases that exceeded 30%, with 12 states seeing benefit costs more than double. In most states, benefit expense increases were the result of having to pay off growing pension debt. In contrast, only two states saw expenditure on staff salaries increase by more than 30%.

More analysis of the spending data by Reason’s Christian Barnard finds that had “benefit spending on instructional and support staff remained at 2002 inflation-adjusted levels per pupil, schools across the United States would have saved about $66.9 billion in 2019. That’s enough to give every teacher a $20,913 raise.” 

Due to market fluctuations and a significant shift in pension funds’ ability to safely achieve the investment returns they did in the past, these public pension benefits have become much more expensive than they were originally priced. This reality has taken dollars away from other education budget options that could better address teacher recruitment and retention challenges. With most states continuing to struggle with funding these increasingly expensive benefits, pensions are going to continue to take money out of classrooms—even at the expense of potential salary increases—across the country. Unfortunately, states saddled with public pension debt can do little but pay off unfunded liabilities and restructure their investment assumptions, which can often be costly.

These fiscal realities mean that proposals that lean on pension benefits to improve teacher recruitment and retention, like the one currently being considered in Alaska, are misguided. Instead, state legislators should look to places like Florida, where the governor has proposed a plan for the state to start contributing an additional 3% to the teachers’ defined contribution plan each year, in addition to an increase in pay, to help attract teachers and better ensure they have adequate savings upon retirement. This type of option is likely much less expensive for taxpayers in the long run and provides educators an immediate boost to their compensation.

Stay in Touch with Our Pension Experts

Reason Foundation’s Pension Integrity Project has helped policymakers in states like Arizona, Colorado, Michigan, and Montana implement substantive pension reforms. Our monthly newsletter highlights the latest actuarial analysis and policy insights from our team.