Teacher pensions: Answering Your Questions

Last week, I blogged on teacher pensions and the piece drew agreement and criticism. In response to critics, I’ll let the numbers speak for themselves. Today, I wanted to continue the conversation by following up on the good questions raised by commenters.

• How much do teachers’ salaries go up on average? Berkman34 and ChuckinMedford asked about the assumption of a 4.69 percent annual increase in salaries that underpins my average salary number for 2011. There are a few things to say on this which can be helpful. First, the 4.69 percent increase is simply what empirically happened between 2004 and 2009, which were also difficult fiscal years, and years in which municipal aid from the state was not seeing the level of cuts we’ve seen in 2010 and 2011. Second, some asserted that teacher contract negotiations in most communities are leading to outcomes that lie between givebacks and two percent increases rather than the 4.69 percent figure. He is right that the nominal base salary increases are harder to negotiate, but they have been for quite some time. See the stories I did previously on Chelmsford and the regional King Philip districts. But the real increases in teachers’ salaries is a function of base salary negotiations, as well as “step,” “lane,” and longevity increases. Step increases are scheduled levels of compensation that rise over the years. In Boston, the salary schedule calls for nine steps until a teacher reaches the maximum annual salary. Lane increases are for educational attainment (which do not correlate with student achievement by the way). Longevity increases are rewards for length of service. All of these things taken into consideration, the average teacher salary is going up well beyond the nominal rate. A recent Boston Foundation report, undertaken with the Boston Municipal Research Bureau, noted that:

A Boston teacher’s total annual compensation, including benefits and salary differentials, can exceed his or her salary base by 29.2 percent to 40.6 percent depending on length of service, educational attainment, or additional responsibilities. A teacher with a master’s degree and 75 graduate credits (master +75), in step 9 this year, can add approximately $27,070 or 29.2 percent more to his or her compensation once benefits, career awards and differentials are included. Benefits of health insurance alone add $17,114 or 18.5 percent to the salary base. Differentials are extra pay for such things as board certification, mentoring fellow teachers, working at a school with extended day or other non-traditional schools, or compensation for missed planning and development periods. The annual normal costs for teacher pensions are not included in this calculation.

• Do “teachers pay 95 percent of their own pension”? Berkman34 makes that assertion, and in some cases he is right. What really matters is how much teachers contribute to the system (and when they contributed it). It is close to being true for teachers currently starting now because they have (relatively) high contribution rates, but its not true for teachers who have paid low contribution rates throughout their career (and those who bought in late in their career). And it’s definitely not true for anyone if our pension fund fails to meet its expected rate of rate over the coming years (and there are some smart people who think it will not.) Ask yourself this: If everyone is paying for their own pension, why is the Teachers Retirement System only funded at 63 percent? Also, ask yourself this: If you have a 401K, wouldn’t you be pleased to take an 8 1/2 percent rate of return? That’s what the TRS is basing its numbers on. Right now, that seems a huge stretch, and they are currently only 62 percent funded. Blaming Wall Street investment losses is not close to the answer because the system has never reached full funding (see pg. 6 of the linked document), and the expected rate of return is predicated on healthy investment returns. You can’t have it both ways.
• What do teachers pay into their pension? Is it fair? This is one that really matters a lot, because we want to have a pension system that treats teachers (really any public employee) fairly. The short answer is teachers are not paying enough into the pension system to make it self-paying. The longer, nuanced answer that is more useful to policymakers is that new teachers pay a good share of their pensions, while older teachers pay far less. If you were hired after 2001, you pay 11 percent, between 1996 and 2001 nine percent, between 1984 and 1996 eight percent, between 1975 and 1984 seven percent, and if before five percent. In a way the young are subsidizing the old, and it isn’t fair, as my Institute noted a long time ago.
• Isn’t a teacher pension calculated in a very simple way, with teachers receiving a straight-shot 80 percent of their top three years’ salary? Redsoxbono commented that all teachers received a payout of 80 percent of their top three years of salary. He is right sometimes. As teachers get closer to 35 years in the system, Redsoxbono is correct, but it is not that simple, say, for 30-year veterans, so I made the assumptions I did in order to reflect the very complicated system we have.
• Do teachers receive social security, and isn’t it necessary for Massachusetts to provide a fair pension that makes up for teachers’ lack of access to the SS system? Short answers are no and yes. Hugeweasel was right to comment that providing some basic framing on the pension issue would be helpful. S/he is right. Public employees in the state pension system (including teachers) do not receive SS, so whatever pension reform we put forward has to ensure that we are not treating the state retirement system like a simple equivalent for a 401K. I think that there is a lot of merit in being grown-ups in this discussion and seeking to have a hybrid system which is in part a defined benefit system (just as it is today) and in part a 401K system, but more on that in a future blog. Folks in my shop are trying to figure out what precisely that would look like.
• Here is my question, which no commenter asked, but which I think is the most important one to answer: Is the system, as currently designed, able to attract the kind of teachers we want into the profession? That is, is a system that costs a lot up front and yields little investment/retirement value until 20 years in the system really attractive to young talent that can consider going into teaching or different endeavors? I am not talking about the current supply of teachers, whose talents range from very good to mediocre, and whose test scores reflect that. I am talking about teaching as a profession attractive to truly academically inclined individuals who have demonstrated abilities above the norm. The answer is no, and that is an empirically solid answer given student achievement results as well as the test scores of teachers and prospective teachers.

Overall, we have a pension system that is unaffordable to the public, unsustainable by its own members, unfair to younger teachers, and dissuades a higher level of talent from coming into the profession. Thanks to commenters for their good points and good questions. We may believe that we can sweep this discussion back under the rug, but given what is happening in cities across the state, the state of our fiscal house, and the need to develop a strong new teacher corps, it’s not going away.

Crossposted at Boston.com’s Rock the Schoolhouse.