The Education Gadfly Weekly

In June, the Thomas B. Fordham Institute released a study of Ohio's teacher pension system entitled Golden Peaks and Perilous Cliffs: Rethinking Ohio's Teacher Pension System. This report has triggered much overdue public debate in Ohio and beyond regarding teacher pension systems and their interaction with school-improvement efforts. The report, however, was not well-received by the State Teachers Retirement System of Ohio (STRS), which attacked the authors of the report.

The study, authored by Dr. Robert M. Costrell, of the University of Arkansas, and Dr. Michael J. Podgursky, of the University of Missouri, identified four major shortcomings in Ohio's existing "defined-benefit" teacher pension system:

1. It encourages early retirement. Over time, the pattern of pension wealth accrual built into Ohio's teacher pension system has created powerful incentives for teachers to retire in their fifties. The average retirement age for Ohio teachers is fifty eight, which is well below the current minimum age for regular retirement in the Social Security system (age sixty five, but soon rising to age sixty seven), and below the private sector generally. With rising life expectancies, the cost of Ohio's defined benefit system will continue to rise as increasing numbers of teachers retire relatively young. Early retirement also creates a heightened demand for health insurance, because Medicare coverage does not begin until age sixty five, putting increasing strain on Ohio's already severely under-funded teacher retiree health insurance fund.
2. It's a disincentive for young teachers and hinders teacher mobility. Young teachers who move from Ohio's pension system to another teaching or non-teaching job suffer serious losses in pension wealth. Teachers with ten or more years of seniority suffer very large losses if they move into another line of work or to another state. Additionally, Ohio's high payroll-contribution rate (currently ten percent and likely to rise) may hinder recruitment of new teachers.
3. It lacks transparency. Ohio's teacher pension system is remarkably complex and opaque. Relatively few people understand its intricacies, which have allowed the system to evolve into a costly and completely irrational structure-a set of "golden peaks" and "perilous cliffs" in pension wealth accumulation that defy any logic-with limited public awareness of how the system works and what the implications of its workings are over the long term.
4. It is rife with ad hoc fixes. Because the system now encourages early retirement, Ohio has responded by adding ad hoc incentives for continued employment, making the system even more complex and costly. Today, it permits teachers to collect their pensions while continuing to work full time as a teacher (known as "double dipping")-at a time when the assets of the pension system fall far short of accumulated pension and health insurance liabilities.

The STRS responded to this first-rate study in an inflammatory fashion, charging mistakes and misstatements and disseminating these charges far and wide, and in fact shared its critique with every teacher in the system.

In response to this attack, Costrell and Podgursky have now provided a detailed, documented professional response. (Read Costrell and Podgursky's full reply.)

A summary of Costrell and Podgursky's response:

• The STRS ignores the central theme of the report. The way individual pension wealth is built up makes no sense, especially from the perspective of a young teacher.
  
  "We think it is significant that a Columbus teacher entering the Ohio system at age twenty five, would, at age fifty, suddenly earn $123,000 in pension wealth accrual, after much smaller annual accruals for the previous twenty-four years," they said. "At age fifty, it is as if her 401(k) retirement account contributions totaled $123,000 in that one year."
  
  If she stays another five years, she accrues the equivalent of another $448,000 in contributions to her retirement account. Then, over the last half of her fifties, she gets very little increase in her pension wealth. If she sticks it out to age sixty (thirty-five years), she gets a one-year jump of $113,000. But if she stays any longer, the pension system punishes her, reducing her pension wealth each and every year.

• The only misstatement seems to be that of the State Teachers Retirement System of Ohio. The retirement system's rather emphatic statement that, "STRS Ohio is not seeking any contribution increase for the funding of its pension plan" is explicitly contradicted by two features of its proposal to boost teacher and employer contributions to the system. First, 0.6 percentage points of the STRS's proposed five-point increase in contributions are designated for pensions. (See page twelve of the Ohio Retirement Study Council's Annual Report 2006.) Moreover, as the STRS states in its March 2007 report to the Ohio Retirement Study Council, once the contribution hike is in place, "the current one percent of employer contributions going toward health care can start flowing back into the pension fund" (see page five of the report here). Taken together, the proposed five-point contribution increase will result in a 1.6 point increase for pension funding-about one third of the total hike.
  
  Clearly the hike is designed to shore up both pension and retiree health care funding (as the report states), contrary to the STRS's claim that it "is not seeking any contribution increase for the funding of its pension plan."
  

• The STRS was consulted. The STRS statement that it was not consulted for the report is simply false. E-mails were exchanged and a conference call was conducted with an STRS board member; however, the STRS never responded to a list of questions submitted asking for additional information.
  
  As it turned out, the report focused on the incentives embedded in the defined benefits formula, and this analysis could be conducted with publicly available information. That analysis stands-as does the rest of the report-despite the STRS's failure to provide answers to the researchers' questions.

In short, the report stands. The STRS's attack against the authors and the Thomas B. Fordham Institute has no foundation and serves only to divert the Ohio public from the important issues identified and the first-rate analyses of these issues provided in the report. We strongly encourage all Gadfly readers to read the original report, the STRS critique, and Costrell and Podgursky's reply very closely. There is much here to consider and think through, especially in light of ever more calls for increased educational spending to do more of the same. Ohio-as a state that is getting grayer and poorer-badly needs to spend its tax dollars smarter, and Costrell and Podgursky provide powerful guidance on how to do this while also making the teaching profession more appealing to young college graduates.

Read the original report, Golden Peaks and Perilous Cliffs.

View the STRS's critique of the report.

Read the authors' full reply to the STRS's critique.

Since the passage of the No Child Left Behind Act of 2001 (NCLB), schools have ramped up instructional time in reading and math but are spending less time teaching things like history, social studies, science, and the arts-subjects not tested under the federal law (see here and here). Unfortunately, this narrowing of the curriculum is happening at the same time employers all over the world are seeking the most competent, creative, and innovative people on the planet with a very high level of preparation in reading, writing, speaking, mathematics, science, literature, and the arts-as was highlighted in a recent presentation on Capitol Square by Marc Tucker of the National Center for Education and the Economy (see here).

Beyond the Basics: Achieving a Liberal Education for All Children examines the need to restore the liberal arts to the K-12 curriculum through a volume of papers-most presented last December at a conference in Washington, D.C.-assembled by Chester E. Finn Jr. and Diane Ravitch (both Fordham Institute board members). It stresses the need to ensure productive and responsible citizens who can think critically and are prepared for work and a satisfying life. There has been an age-old calling for a "broad, liberal arts education"-Aristotle said it is necessary for one to act "nobly" and Benjamin Franklin said it is needed to cultivate "the best capacities" in humans. Finn and Ravitch call for its revival in the context of our fast-paced modern world: where "one may well speak with his Hispanic neighbor before leaving for the office, bargain with a Nigerian taxicab driver, then negotiate a marketing deal via teleconference with counterparts in Tokyo, Sao Paolo, or Moscow, one needs to broaden his base of learning."

Finn and Ravitch note the harmful and unintended consequence of NCLB in creating a "curricular squeeze" and caution against the inclination to substitute "kill and drill" for "problem solving." They also warn against too much STEM (Science, Technology, Engineering, and Mathematics) education without enough flowers (i.e., history, foreign language, arts, geography, etc.). (Finn and Ravitch also make the case for flowers in a commentary in the August 8th Wall Street Journal.)

This volume offers some worthwhile recommendations for ensuring that every child receives a solid liberal arts education, including recruiting talented teachers who themselves enjoyed a rigorous liberal arts education; arming them with a solid, content-rich curriculum; and holding them accountable for preparing students broadly, not just in "basic skills." All those interested in the rebirth of the liberal arts curriculum should check out the report here.

The powerful forces bearing down on Ohio and public education here were nicely encapsulated in two recent Dayton Daily News articles.

The first was headlined "Newly laid-off Dayton teachers may have to leave Ohio to find jobs" (June 24th), while the second simply read "Report: Delphi to offer buyouts" (June 25th). These are two completely different industries, yet the same forces are at work.

Two industrial-age enterprises-public education and automobile manufacturing-both burdened by powerful and self-interested, industrial-style union work forces, are painfully and involuntarily finding themselves being restructured for the 21st century. How they deal with these changes will profoundly affect the future economic and social health of the Buckeye State.

Judging by recent developments in Dayton, early signs in public education are not encouraging. Urban schools particularly seem to be in denial, struggling mightily even to picture what it would mean to do things differently.

In Dayton, management is struggling to keep the ship afloat, while labor clings to all it can-seniority above all else-even as the vessel threatens to sink. At Delphi, by contrast, part of an industry that has been buffeted longer than public education by job losses, automation, and competition, the United Auto Workers union (UAW) is working with management to restructure the labor force so Delphi can compete anew.

This collaboration is hard, but it's driven by the blunt reality that Delphi is bankrupt and lost $5.5 billion in 2006. Seeking to survive, one key move is to offer early retirements and buyouts to older workers. To remain viable, Delphi and the UAW understand that the company must attract, develop, and retain young, flexible, and energetic employees.

No such lesson has yet been internalized by the public-school sector and its unions.

With the recent rejection of Dayton Public Schools' operating levy, the district is being forced to lay off 208 teachers and 87 aides. (Salaries typically account for more than three quarters of school system budgets-and nobody seems to know how to reduce those costs by substituting technology or other productivity enhancers.)

Following old-fashioned seniority rules, Dayton's cuts are falling mainly on young teachers without regard to individual effectiveness or the personnel needs of particular schools.

This one-size-fits-all approach to downsizing the work force is why one of the city's premier academic high schools-the Dayton Early College Academy (DECA)-has been forced to leave the district and become a free-standing charter school. Its eager younger instructors are much of the reason DECA has earned the academic rating of "excellent."

But only by becoming a stand-alone charter school can it retain them. To its great credit-and the consternation of the Dayton Education Association-the school district's leadership is facilitating this transformation, mindful that hundreds of children stand to benefit.

Unfortunately, other innovative, high-performing schools in Dayton-Stivers School for the Arts, the World of Wonder school, the Charity Adams all-girls school-will see their teaching staffs dramatically altered for 2007-08. These schools, all led by strong principals who have labored to build successful school cultures and teaching teams, must bid farewell to many of the instructors they have developed.

Maybe the principals can do it again, this time by struggling to teach new tricks to set-in-their-ways veterans. Or maybe the schools will sink into mediocrity. That would not be a healthy development for a district where nearly half the schools are already getting the equivalent of Ds or Fs on the state report card.

Laying off young teachers and keeping old ones has the perverse effect of increasing the per-unit cost of educating children without creating greater efficiency or effectiveness.

Yet Dayton Public Schools' leaders are hostage to an industrial model of education, enshrined in a collective bargaining agreement that rewards teachers for longevity, not their impact on student achievement or even the staffing needs of school leaders.

This is a recipe for disaster for a district with a declining tax base and an increasingly poor and aging population that demands doing more with less.

The auto industry may finally be learning its version of this lesson. In the circles that run public education in Ohio, however, there's little evidence that anyone in Columbus or Dayton is intent on rewriting the rules so schools such as DECA (and the personnel arrangements they need to thrive) can become the norm as opposed to a one-time exception.

The time has passed for bailing out the leaky, old ship. It needs to be mothballed and a new one launched.

Read a letter challenging Ryan's op-ed piece, from the July 31st Dayton Daily News: "Writer's comparisons of schools misleading."

Dayton Daily News education reporter Scott Elliott used his blog to open discussion on the seniority issue: "Ryan: Seniority killing school change."

Elliott further discusses the seniority issue in a story in the August 5th Dayton Daily News: "Budget cuts reach beyond those who were laid off."

In June, the Thomas B. Fordham Institute released a study of Ohio's teacher pension system entitled Golden Peaks and Perilous Cliffs: Rethinking Ohio's Teacher Pension System. This report has triggered much overdue public debate in Ohio and beyond regarding teacher pension systems and their interaction with school-improvement efforts. The report, however, was not well-received by the State Teachers Retirement System of Ohio (STRS), which attacked the authors of the report.

The study, authored by Dr. Robert M. Costrell, of the University of Arkansas, and Dr. Michael J. Podgursky, of the University of Missouri, identified four major shortcomings in Ohio's existing "defined-benefit" teacher pension system:

1. It encourages early retirement. Over time, the pattern of pension wealth accrual built into Ohio's teacher pension system has created powerful incentives for teachers to retire in their fifties. The average retirement age for Ohio teachers is fifty eight, which is well below the current minimum age for regular retirement in the Social Security system (age sixty five, but soon rising to age sixty seven), and below the private sector generally. With rising life expectancies, the cost of Ohio's defined benefit system will continue to rise as increasing numbers of teachers retire relatively young. Early retirement also creates a heightened demand for health insurance, because Medicare coverage does not begin until age sixty five, putting increasing strain on Ohio's already severely under-funded teacher retiree health insurance fund.
2. It's a disincentive for young teachers and hinders teacher mobility. Young teachers who move from Ohio's pension system to another teaching or non-teaching job suffer serious losses in pension wealth. Teachers with ten or more years of seniority suffer very large losses if they move into another line of work or to another state. Additionally, Ohio's high payroll-contribution rate (currently ten percent and likely to rise) may hinder recruitment of new teachers.
3. It lacks transparency. Ohio's teacher pension system is remarkably complex and opaque. Relatively few people understand its intricacies, which have allowed the system to evolve into a costly and completely irrational structure-a set of "golden peaks" and "perilous cliffs" in pension wealth accumulation that defy any logic-with limited public awareness of how the system works and what the implications of its workings are over the long term.
4. It is rife with ad hoc fixes. Because the system now encourages early retirement, Ohio has responded by adding ad hoc incentives for continued employment, making the system even more complex and costly. Today, it permits teachers to collect their pensions while continuing to work full time as a teacher (known as "double dipping")-at a time when the assets of the pension system fall far short of accumulated pension and health insurance liabilities.

The STRS responded to this first-rate study in an inflammatory fashion, charging mistakes and misstatements and disseminating these charges far and wide, and in fact shared its critique with every teacher in the system.

In response to this attack, Costrell and Podgursky have now provided a detailed, documented professional response. (Read Costrell and Podgursky's full reply.)

A summary of Costrell and Podgursky's response:

• The STRS ignores the central theme of the report. The way individual pension wealth is built up makes no sense, especially from the perspective of a young teacher.
  
  "We think it is significant that a Columbus teacher entering the Ohio system at age twenty five, would, at age fifty, suddenly earn $123,000 in pension wealth accrual, after much smaller annual accruals for the previous twenty-four years," they said. "At age fifty, it is as if her 401(k) retirement account contributions totaled $123,000 in that one year."
  
  If she stays another five years, she accrues the equivalent of another $448,000 in contributions to her retirement account. Then, over the last half of her fifties, she gets very little increase in her pension wealth. If she sticks it out to age sixty (thirty-five years), she gets a one-year jump of $113,000. But if she stays any longer, the pension system punishes her, reducing her pension wealth each and every year.

• The only misstatement seems to be that of the State Teachers Retirement System of Ohio. The retirement system's rather emphatic statement that, "STRS Ohio is not seeking any contribution increase for the funding of its pension plan" is explicitly contradicted by two features of its proposal to boost teacher and employer contributions to the system. First, 0.6 percentage points of the STRS's proposed five-point increase in contributions are designated for pensions. (See page twelve of the Ohio Retirement Study Council's Annual Report 2006.) Moreover, as the STRS states in its March 2007 report to the Ohio Retirement Study Council, once the contribution hike is in place, "the current one percent of employer contributions going toward health care can start flowing back into the pension fund" (see page five of the report here). Taken together, the proposed five-point contribution increase will result in a 1.6 point increase for pension funding-about one third of the total hike.
  
  Clearly the hike is designed to shore up both pension and retiree health care funding (as the report states), contrary to the STRS's claim that it "is not seeking any contribution increase for the funding of its pension plan."
  

• The STRS was consulted. The STRS statement that it was not consulted for the report is simply false. E-mails were exchanged and a conference call was conducted with an STRS board member; however, the STRS never responded to a list of questions submitted asking for additional information.
  
  As it turned out, the report focused on the incentives embedded in the defined benefits formula, and this analysis could be conducted with publicly available information. That analysis stands-as does the rest of the report-despite the STRS's failure to provide answers to the researchers' questions.

In short, the report stands. The STRS's attack against the authors and the Thomas B. Fordham Institute has no foundation and serves only to divert the Ohio public from the important issues identified and the first-rate analyses of these issues provided in the report. We strongly encourage all Gadfly readers to read the original report, the STRS critique, and Costrell and Podgursky's reply very closely. There is much here to consider and think through, especially in light of ever more calls for increased educational spending to do more of the same. Ohio-as a state that is getting grayer and poorer-badly needs to spend its tax dollars smarter, and Costrell and Podgursky provide powerful guidance on how to do this while also making the teaching profession more appealing to young college graduates.

Read the original report, Golden Peaks and Perilous Cliffs.

View the STRS's critique of the report.

Read the authors' full reply to the STRS's critique.

Since the passage of the No Child Left Behind Act of 2001 (NCLB), schools have ramped up instructional time in reading and math but are spending less time teaching things like history, social studies, science, and the arts-subjects not tested under the federal law (see here and here). Unfortunately, this narrowing of the curriculum is happening at the same time employers all over the world are seeking the most competent, creative, and innovative people on the planet with a very high level of preparation in reading, writing, speaking, mathematics, science, literature, and the arts-as was highlighted in a recent presentation on Capitol Square by Marc Tucker of the National Center for Education and the Economy (see here).

Beyond the Basics: Achieving a Liberal Education for All Children examines the need to restore the liberal arts to the K-12 curriculum through a volume of papers-most presented last December at a conference in Washington, D.C.-assembled by Chester E. Finn Jr. and Diane Ravitch (both Fordham Institute board members). It stresses the need to ensure productive and responsible citizens who can think critically and are prepared for work and a satisfying life. There has been an age-old calling for a "broad, liberal arts education"-Aristotle said it is necessary for one to act "nobly" and Benjamin Franklin said it is needed to cultivate "the best capacities" in humans. Finn and Ravitch call for its revival in the context of our fast-paced modern world: where "one may well speak with his Hispanic neighbor before leaving for the office, bargain with a Nigerian taxicab driver, then negotiate a marketing deal via teleconference with counterparts in Tokyo, Sao Paolo, or Moscow, one needs to broaden his base of learning."

Finn and Ravitch note the harmful and unintended consequence of NCLB in creating a "curricular squeeze" and caution against the inclination to substitute "kill and drill" for "problem solving." They also warn against too much STEM (Science, Technology, Engineering, and Mathematics) education without enough flowers (i.e., history, foreign language, arts, geography, etc.). (Finn and Ravitch also make the case for flowers in a commentary in the August 8th Wall Street Journal.)

This volume offers some worthwhile recommendations for ensuring that every child receives a solid liberal arts education, including recruiting talented teachers who themselves enjoyed a rigorous liberal arts education; arming them with a solid, content-rich curriculum; and holding them accountable for preparing students broadly, not just in "basic skills." All those interested in the rebirth of the liberal arts curriculum should check out the report here.