A new study by Bellwether Education Partners examines the changes to teacher pension systems over the last thirty years. The report uses an historical data set from the Wisconsin Retirement Research Committee (RRC) and the state legislature that includes data from public employee pension plans in eighty-seven retirement systems across all fifty states. The data span from 1982 to 2012 and are based on annual reports, employee handbooks, statutes, and actuarial reports. Analysts examine defined benefit plans only—and, to facilitate comparisons, only the plans offered to hypothetical newly hired, twenty-five-year-old teachers who remain in those plans in each state. Analysts note several trends that have developed over the last thirty years, including:
- The median state offers a much lower vesting period compared to several decades ago, dropping from ten years to five years.
- States began lowering the normal retirement age in the 1990s and continued into the 2000s. But in recent years, states have increased the retirement age, which decreases retirement benefits and results in fewer years collecting a pension. In 2012 alone, nineteen plans increased their normal retirement age for new teachers, pushing the average retirement from age fifty-five to fifty-eight.
- Average employee contribution rates remained relatively constant throughout the 1980s, 1990s, and 2000s, but increased after the recession, thereby lowering teachers’ net retirement compensation.
Further, when states reduce pension benefits, those cuts fall disproportionately on new and future teachers. While benefit increases tend to apply to all workers, benefit decreases typically only affect new workers. And because pension benefits are severely back-loaded, teachers inherently accrue very little wealth at the beginning of their careers.
For example: Although pension benefits for career teachers fell only 1 percent from 1982 to 2012, teachers who were hired in 2012 and stayed ten years would qualify for an inflation-adjusted pension benefit worth 25 percent less than their peers who began in 1982. Worse, in Illinois (a.k.a. the Abuse-the-New-Teachers state), a new teacher would not see a positive return on her contributions unless she served more than two decades in the system. The report closes with this depressing factoid: For every $100 that states and districts contribute to teacher pension plans, an average of $70 goes toward paying down pension debt, rather than toward actual retirement benefits. Not much good news to share here—or ever on this topic!
SOURCE: Leslie Kan and Chad Alderman, "Eating Their Young: How Cuts to State Pension Plans Fall on New Workers," Bellwether Education Partners (July 2015).
