At a time when millions of baby-boomer teachers are nearing retirement, their decisions on when to leave the classroom are guided more by the early retirement incentives built into state pension plans than by educational considerations, according to by a pair of economists.
Those pension formulas devised by state legislatures encourage teachers to retire in their mid-50s, while penalizing them for teaching longer than that, states an article appearing in the Winter 2008 issue of the magazine Education Next.
The research by Robert M. Costrell, an education reform and economics professor at the University of Arkansas, and Michael Podgursky, an economics professor at the University of Missouri at Columbia, calls attention to the long-lasting consequences from what they view as outdated teacher pension systems. These systems, though they vary from state to state, have a common, fundamental flaw, the researchers say: They reward teachers who stay in the same job for 20-plus years, penalize them for teaching too long, and make it difficult for teachers to move to different jobs.
The researchers advise that states must attack the problem head-on. If not, they warn, the teaching supply will be disrupted as more teachers retire than are hired; state and local district budgets will be strapped now that it鈥檚 time to start paying these lucrative pensions; and an intergenerational conflict will intensify between younger teachers who may get short-changed to pay for retirements and the veteran teachers who are the beneficiaries of this system.
鈥淚t is a real educational issue, and it鈥檚 going to force harsh trade-offs,鈥� Mr. Costrell said, noting how retirement benefits are eating up a greater share of school expenditures.
The problem also will plague states and districts trying to lure private-sector professionals into the teaching profession, the researchers said, especially those in mathematics and science, which are because they are highly compensated and in demand.
鈥淭he young teachers do not benefit from this system, but it鈥檚 going to be paid for out of their salaries,鈥� Mr. Costrell said. 鈥淎nd, it鈥檚 going to make it more difficult to recruit mid-career switchers.鈥�
鈥楶ush and Pull鈥�
The researchers describe a 鈥減ush and pull鈥� problem that results in giant spikes in retirement wealth that can happen at certain ages, or with certain years of service. The decision to retire at any given time can mean the difference in hundreds of thousands of dollars over the span of a teacher鈥檚 retirement. The researchers explain it by using examples from two states with different formulas.
In Ohio, a teacher with 24 years of service who wants to retire at age 49 gets a pension worth $315,000, but staying just another six years will escalate the value of the pension to $1 million. In Arkansas, a 53-year-old teacher with 28 years of teaching experience may want to keep teaching鈥攂ut each year that teacher stays on the job, the teacher forgoes a year of pension payouts, and never recoups that amount. Still the teacher and school district keep contributing 20 percent of the teacher鈥檚 wages into the overall pension fund.
Though there is little empirical evidence to indicate just how these pension systems are affecting the teacher labor force, the researchers say existing studies indicate teachers respond to these kinds of incentives and disincentives.
鈥淭hese are large sums of money, and you can鈥檛 be indifferent to that,鈥� Mr. Costrell said.
Teacher retirement plans have not kept up with pension changes in the private sector. Most private-sector retirement plans are defined-contribution plans, in which workers and their employers contribute a certain percentage of wages to a retirement fund, which can transfer from job to job. There鈥檚 no guarantee of any regular retirement payouts or monthly checks.
That鈥檚 far different from teachers鈥� 鈥渄efined-benefit鈥� pension plans, in which retired educators are guaranteed a set amount of money throughout retirement, and in which contributions fund the overall pension system and are not tied directly to individual retirement checks.
The defined-benefit structure has created significant unfunded pension liabilities in teacher systems across the country, made worse when legislators respond to pressure from teachers鈥� unions and create early-retirement incentives that translate into several additional years of pension payouts by the retirement funds. Often, these changes are made when the stock market is roaring and the teacher retirement funds look richer, prompting legislators to sweeten the retirement pot for teachers, the researchers said.
鈥淚t鈥檚 easy to give away [such benefits],鈥� said Mr. Podgursky. 鈥淏ut once you giveth, you can鈥檛 take it away.鈥�
The solutions are complicated, and legislators have only nibbled around the edges. Some states, including Arkansas, have created plans in which teachers can stay in the classroom and collect their pensions, which are deposited in an individual retirement account until they retire. Some states, such as California, allow teachers to come back to their profession after a break鈥�12 months, for example鈥攐r to work part time and not accrue additional benefits.
鈥淭here is a tendency to come at this in a piecemeal way,鈥� Mr. Podgursky said. 鈥淟et鈥檚 re-examine this thing from top to bottom. That鈥檚 what we really think states need to be doing.鈥�
