What’s a retiring teacher’s pension worth?

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Well, that’s an easy one to answer. It depends on how much a retiring teacher earns at the end of his or her career. So let’s start there. According to the state’s department of education, in 2009 the average teacher in the Commonwealth earned $67,577 in 2009. That’s the last year for which we have complete data. If you apply a reasonable algorithm, based on the lowest assumption for salary increases (just over 4.5% annually) made by the pension system itself, you get an average teacher salary in 2011 of about $74,000.

Retiring teachers, of course, reach salaries that are far beyond the average salaries. You put 30, even 35 years into a profession marked by single salary structures, and seniority acts as a law that makes it so you receive much higher salaries.

Last week, WCVB’s Chronicle discussed the national debate on collective bargaining. I noted that a teacher in the profession for 30 years will be able to retire with a pension of just under $60,000. I’ve gotten lots of emails after that appearance questioning the figure and accusing me of cooking the books. Well, let’s go back to the data on statewide teacher compensation. For ease of presentation, I’ll present five scenarios for teachers approaching retirement age. If the average teacher salary statewide in 2009 was $67,577, which has since then ramped up to $74,000 in 2011, then the salary for the 30-year veteran approaching retirement age is quite a bit higher than that. After all the average salary includes three-, five-, 10- and 20-year veterans.

Here’s my two assumptions, and I think any reasonable person will see that I am bending over backwards to present a fair case:

• To figure out the average salaries in 2009 and 2010, as noted above, I’ve based it on a 4.69% annual increase in salaries since 2009. That’s the average increase from 2004 to 2009 and well below the state pension system’s assumptions which range from 4.5~8%.
• To approximate the salary of a 30-year veteran teacher who is about to retire, I assumed salaries 15 percent higher than the average of all teachers statewide. I have to use some such an assumption because the state does not collect statewide data on the distribution of salaries broken down by years of service or by age. Should you find this an unreasonable assumption, I’d urge you to take a look at the Boston Herald’s online database of City of Boston salaries; you can see teacher position salaries. (I’ve linked to Brighton High to be more representative; given the higher percentage of teachers with more seniority at Boston Latin, I thought that would be fairer.)

So, here is what teachers starting their careers at 25 and retiring at 55, 57, 58, 60 and 40 years of age will be able to receive as pension payouts.

For the pension geeks among you, note that the table uses a three-year top salary average, because that is how the Massachusetts pension system calculates payouts. After calculating the average salaries in 2009, 2010, and 2011 salaries ($70,797), I added 15% to approximate the top salaries for 30-year veterans ($81,417). For more on the row entitled “Retirement-plus”, see page 9 of this report. It’s a benefit for teachers (sought by the unions) which added $125 million annually to the state’s pension liability and induced thousands of teachers to retire early. (Remember the hue and cry about teacher shortages?)

Conclusion: If I am wrong in my assertion regarding the amount received by a 30-year veteran, it is at best a question of being off by two years.

To those people who like to repeat the tired mantra that pensions are not a real and substantive issue, take a look at the table below. It is a simple presentation of the same set of scenarios (career start at 25, retirement at 55, 57, 58, 60 and 65) for the average aged teacher today (who is 44), noting what that teacher’s pension payout will be when he or she retires.

This pension discussion does not obviously include other benefits for district school teachers, which include health care benefits during employment (which is part of any private or public employment package) and also health care coverage for retirees (which is next to unheard of for private sector employees). The state and almost all Massachusetts municipalities, with the exception of perhaps a handful of localities, have not even begun thinking about how to pay down the tens of billions of dollars in retiree health care benefits.

So, finally, to those who claim that none of this sometimes too passionately debated discussion would have happened but for the financial crisis, sorry, but no. This is certainly a question of benefits for real-life people, but it is also a story about what numerically is possible. The financial sector’s shenanigans merely sped up the flash point of a slow train wreck that we have watched from what seemed like afar.

The train is coming into the station, and we need to change tracks. Fast.