A new Urban Institute series grades America’s public pension plans on three criteria: whether they place employees on a path to retirement security, create proper incentives to retain a productive workforce, and set aside enough funds to finance the future benefits promised to employees. The authors separate out state-administered retirement plans for several occupations, including teachers, awarding thirty-two teacher plans a C, with the remaining split roughly equally among B’s, D’s, and F’s. There are no A’s, and the F’s include Ohio, Kentucky, and Rhode Island, among others. Upon further inspection, the C grade seems to be awarded so frequently because forty-one teacher plans receive A’s for having a suitable “retirement income for long-term employees” (in other words, the plans are plenty generous for veteran teachers). The grades vary much more—and tend to be much lower—for short-term employees. The analysts also include three research papers that dig into various thorny issues relative to public pension systems, including one that demonstrates how traditional plans discourage work at older ages. They find that in 63 percent of traditional state and local pension plans employees hired at the age of twenty-five maximize their lifetime benefits, net of their own contributions, by fifty-seven years old. Looking at teacher plans only, 53 percent of them reach their maximum benefit by fifty-seven, meaning they actually lose money if they keep working thereafter. Analysts close by reminding us that government retirees often work at new jobs while collecting their pensions—after all, older folks are healthier longer. So why discourage them from leaving those government jobs (including teaching) in the first place? (Assuming, of course, that they haven’t lost their instructional edge.)
SOURCE: Richard W. Johnson, Barbara Butrica, Owen Haaga, and Benjamin G. Southgate, The State of Retirement: Grading America's Public Pension Plans (Washington, D.C.: The Urban Institute, 2014).
