Study finds teacher pensions good for recruitment and retention
(Calif.) Pension plans play a critical role in retaining classroom teachers who appear to value the long-term benefits of pensions over 401(k)-style plans, according to a new study.
Researchers from the Center for Labor Research and Education, at the University of California, Berkley–compared benefits for current teachers under existing pension plans in Colorado, Georgia, Kentucky, Missouri, Connecticut and Texas to a hypothetical 401(k) account with the same contribution rate as the pension.
They found that eight out of 10 educators serving in those states can expect to collect pension benefits that are greater in value than what they could receive under an idealized 401(k)-type plan. The study also showed that the typical teacher in these states will serve 25 years in the same state when offered a pension, while two out of three educators will teach for at least 20 years.
“In the six states analyzed, we find that pensions are significantly better matched to a teacher’s career than 401(k) accounts and that switching away from pensions would sharply reduce the retirement security of education professionals,” Nari Rhee, lead author of the report said in a statement. “Moreover, we find that teacher pensions are a critical workforce retention tool, which is a key consideration as public schools in many communities face teacher shortages.”
The center, which was founded in 1964 to analyze labor and employment issues, receives some of its funding from labor unions.
The move to do away with defined benefit pensions has emerged a major issue for organized labor-especially teacher unions.
According to the National Association of State Retirement Administrators, since the recession began in 2008, 48 states have made changes to their pension plans–considered one of the largest draws to the teaching profession. It is perhaps unsurprising, that, many states report struggling in recent years to recruit and retain teachers.
For educators who have long been in the classroom and are on the verge of retiring, there is little risk that they won’t receive their full benefits. But for younger teachers or those looking to enter the profession, there is far more uncertainty about school employers moving to the less costly option.
One big motivator is the growing debt that retirement benefits represent. Unfunded liabilities of state and local government pension plans increased by $433 billion in 2017, according to American Legislative Exchange Council estimates.
In an effort to address the issue, lawmakers in many states have sought to divert money from other services to keep pace with funding the plans.
UC Berkeley researchers noted that teachers in all six states found the defined benefit pension plans as providing the better value and security. According to the study, about 77 percent of teachers would stay in the classroom to earn greater, more secure benefits from the lowest-tier pension compared than they would with an idealized 401(k) system that paid low fees to its administrators and produced the highest market returns.
Researchers concluded that, as policymakers examine ways in which to improve teacher recruitment and retention, they take into consideration the impact of reducing retirement benefits will have on the school system, especially among those who otherwise would remain in the classroom for years to come.