The relationship between teacher experience and quality has been widely studied, as has the relationship between teacher experience and salary. The relationship between experience and total compensation—which includes both salary and retirement benefits—is often overlooked. In a new report, researchers from the Manhattan Institute have thrown open the curtains by calculating the total compensation for teachers with master’s degrees and varying years of experience in the country’s ten largest public school systems. They explain that, although most research demonstrates that quality differences between teachers based upon experience tend to plateau after 5–7 years, most public school teachers still earn salaries according to fixed schedules that are based entirely on years of experience and advanced degrees. Retirement benefits are distributed in a similar way. Approximately 89 percent of public school teachers earn retirement benefits under final-average-salary-defined benefit (FAS-DB) pension plans, meaning that teachers earn a lifetime annuity available only after they reach their respective plans’ threshold. These thresholds, like a salary schedule, are based on a combination of age and years of service. As a result, FAS-DB plans often backload retirement benefits.
The scale of backloading varies across plans. In New York City, for example, a teacher earns an average of only $1,031 in retirement compensation during each of his first fifteen years; in each of the ensuing years, she earns an average of $16,908. In Philadelphia, teachers vest after ten years, which is the same year they reach the “maximum rung” on the salary ladder; however, they earn no positive retirement compensation until year seventeen, and their retirement benefits aren’t maximized until they reach thirty-five years of service. The authors point out that this causes significant problems for the large majority of public school teachers who leave teaching before they reach the sufficient years of service mark (not to mention teachers who are mobile throughout their careers). They also note that backloaded plans harm teachers who remain in the classroom after their specified retirement age. For these teachers, retirement compensation actually turns negative during the later years of their careers, making it financially wise for them to leave public schools. Overall, the report finds that backloaded pension plans “substantially increase the total compensation premium paid to highly experienced teachers who remain in the same school district their entire careers.”
Fortunately, there seems to be a solution: The report outlines an alternative model called a “cash-balance” (CB) pension plan, which allows teachers to more smoothly accrue pension benefits throughout their careers. The CB plan better aligns teacher compensation with teacher quality by “raising compensation for teachers in their early years—a time when teachers improve most dramatically.” The CB plan doesn’t link retirement plans to measurable teacher performance; it simply reallocates teachers’ retirement compensation more smoothly from the beginning to the end of their careers. Furthermore, the researchers found that for the ten school districts they studied, changing from a backloaded plan to a smooth accrual plan would be of equal cost to taxpayers and would reduce the teacher experience premium without reducing a teacher’s total expected career compensation. Sounds like a win for everybody.
SOURCE: Josh B. McGee and Marcus A Winters, “Rewarding Experienced Teachers: How Much Do Schools Really Pay?” Manhattan Institute (October 2015).
