Teachers Pensions are Unaffordable for Teachers, Too

Commentary

Teachers Pensions are Unaffordable for Teachers, Too

A traditional conservative critique of public sector pensions
usually includes some mention about how government workers,
particularly teachers, are all bankrupting the system with their
generous benefits. There are a few reasons why this is an overly
simplistic narrative, including a new analysis from USC Santa
Barbara’s Dick Startz in a
two-part

commentary
for the Brookings Institution. Startz finds that
while unfunded teacher pensions are a “”disaster waiting to happen
for taxpayers,”” most pension systems actually hurt teachers
too.

Teachers’ pensions are far from generous for most. Relative to
Startz’s (rough) estimate of $33,000 for the average annual pension
of a college-educated worker, the median state’s average pensioner
received only $21,000.

Even more surprising is how few teachers receive any
benefits. Startz cites research showing that half of all teachers
don’t qualify for pension
benefits at all
. In the nation’s capital, 70% of teachers do
not “”vest”” in their benefits – i.e. they don’t work long enough for
a public employer to qualify for their pension. (Vesting
requirements are typically at least five to 10 years of
service.)

To make matters worse, when non-vested teachers leave to go to
another employer, they often get back less money than if they’d
just saved on their own. When a non-vested member leaves a pension
plan, they are allowed to take back any contributions they’ve made
to the plan. However, there are many plans that do not offer an
interest credit on the refunded contributions. Since inflation
devalues money over time, it is possible that a refund of
contributions has really lost value relative to when the
contributions were initially made.

Across the country, 41 states return teacher contributions plus
some interest, while six states and the District of Columbia only
return employee contributions. In those latter jurisdictions, a
teacher leaving a pension plan without vested benefits would be
better off leaving their contributions under their mattress than
participating in the teachers’ pension system.
Bellwether Education Partners found
that a teacher making
$40,000 per year in a hypothetical plan based on the median
assumptions of state plans would face a “”savings penalty”” of $9,035
by withdrawing early after three years of service.

To be clear, this is not money that teachers have lost.
Rather, it is money they should otherwise have received.
Pensions are, in the simplest terms, deferred compensation