|
Colorado teacher pensions are among the most generous in the nation, and, like pension benefits across the country, are so skewed toward teachers who spend their careers in one state or district that they may contribute to teacher shortages, a new study says.
But because Colorado teachers do not participate in the Social Security system, they need more robust retirement benefits than many other workers, the document points out.
Written by Janet S. Hansen, vice president and director of education studies for the Committee for Education Development, the study, “Teacher Pensions: a Background Paper,” was commissioned by Denver’s Piton and Donnell-Kay Foundations. (Disclosure: both foundations are funders of Education News Colorado).
Hansen is scheduled to visit Denver in October to discuss her findings.
You can read the study by clicking here. An earlier study, specifically on the Denver Public Schools Retirement System, can be found here.
The pension issue is vital for a couple of reasons. First, across the country, some pension systems – for teachers as well as other public and private sector workers -- are severely underfunded, raising the question of whether promised benefits will be available to all. The Denver and Colorado teacher pension systems do not fall into this category.
Less noted but at least as important, Hansen writes, is the structure of the systems themselves, which provide generous payouts to teachers who spend their careers in a system, but financially penalize people who choose to leave the teaching profession after a short time.
“Fairly limited attention has been paid to penalties incurred by ‘short termers’ because teachers have generally been perceived as spending their careers ‘close to home,’” the study says.
“The penalties paid by ‘short-term’ teachers discourage individuals from moving from areas where their skills may be in surplus to areas which may be suffering from difficulties in filling their teaching slots…These penalties can also serve as a disincentive to individuals who might want to spend a significant time as teachers but who do not see teaching as their single lifetime career.”
The crux of the matter is that teachers, like many public sector employees, still receive “defined benefit” pensions. Under such plans, “employers guarantee employees a specified annual retirement based on a formula,” the study explains. In most cases, teacher pension formulas are based on average earnings over the final years of a teacher’s career, multiplied by years of service.
Increasingly, private sector workers participate in “defined contribution” plans like 401ks, where employers contribute specified amounts to an account established for participating employees.
The starkest difference between the two types of plans is that in defined benefit pensions, employers assume all risk, and,must pay out the agreed-upon amount as long as the retiree lives. In defined contribution plans, the employee assumes all risk, and there is no guarantee the money will outlast the worker.
But the biggest issue with defined benefit teacher pensions, the study says, is that the most generous benefits do not accrue until after a teacher has worked for a district or cohort of districts for about 25 years. The amount school districts must pay into pension plans limit how much they can pay out in teacher salaries, effectively backloading teacher pay to the end of careers, leaving little incentive for young teachers to stay in the profession.
What’s more, once a teacher hits age 45 or so, there are huge incentives for staying another 10 years within their currentsystem, until the big payout hits at age 55, no matter how unhappy or eager to move on that teacher may be.
While Hansen’s paper steers clear of making recommendations, she does point readers toward a hybrid form of pension that school systems might consider. These so-called “cash balance plans” spread the risk more evenly between employer and employee.
Finally, because most defined benefit pension plans are not portable, a teacher who wishes to move to another state is penalized, because he or she must start their years of service over in the new state. Locally, this has been an issue in Denver, because DPS manages its own retirement system. All other districts in the state belong to the Public Employees’ Retirement Association.
Until now, Denver teachers well into their careers have had an enormous disincentive to move to other Colorado districts, and veteran teachers from other districts have had a similar disincentive to move to DPS.
However, after many false starts over the years, a Denver/PERA merger appears imminent.
 |
Subscribe to this comment's feed
Show/Hide comment form
