Those who propose changes to the status quo of teacher pensions are often labeled as anti-teacher. But what few people realize is that the current way these retirement plans are structured offers most teachers a pretty bad deal.
In a new report for the Manhattan Institute, we show how New York City could provide greater retirement security to the majority of teachers — and a raise in take-home pay — at no additional cost to taxpayers.
The pension system in New York, and most other school systems, heavily backloads retirement compensation. Teachers accrue very little wealth during their first two decades of service, then suddenly become eligible for much larger payouts if they remain in the classroom for 30 years or more.
Perhaps this model made sense once upon a time. But it has many negative consequences, especially in the modern economy.
Take, for example, a 25-year-old entering a Gotham classroom for the first time this year. Were she to leave the system 20 years later — perhaps her spouse took a job in the Midwest or she decided two decades in the classroom was enough — she would take with her the equivalent of only about $60,000 in employer-provided retirement savings. If she were to remain in the school system until age 63, on the other hand, she would have earned the equivalent of about $610,000, a more than 10-fold increase in just 18 years.
We propose altering the system so that teachers earn retirement wealth evenly across their careers, just as professionals in the private sector do. Our proposed system would trade today’s high maximum retirement value for the minority of teachers who remain in the system for three decades for a secure retirement path for all teachers.
Our paper also suggests rebalancing the proportions of compensation that go to current salaries versus retirement benefits. Calculations demonstrate that such a reform would give all city teachers a 3.64% bump in take-home pay. If offered the opportunity, many teachers would prefer a system in which they took home a larger portion of their compensation than they do today.
Sometimes the debate over teacher pensions is framed as “old guard” vs. “new guard” — meaning, veteran teacher vs. a new generation that’s likely to spend just a few years on the job before moving to another profession.
But the problem affects more than the few alternatively certified teachers who often leave the classroom after only a few years.
New York City’s pension plan explicitly assumes that a 25-year-old entrant has only about a one-in-three chance of reaching the plan’s maximum retirement wealth at age 63. And fewer than half are expected to last even 20 years, when their retirement accounts are still paltry.
Current pension systems are an anachronism from another era that broadly harm the retirement security of the majority of those now enter teaching. Even young people who are committed to teaching aren’t likely to stay employed by one district for 30 years or more.
In addition, recent policy changes make it more likely that teacher turnover will increase.
In the past, tenure ensured that teachers could remain in their jobs until they chose to retire, almost regardless of their performance. That’s no longer the case. New York and several other states have recently adopted policies that strip tenure from a teacher who is found to be performing unsatisfactorily.
It’s an important reform — bad teachers should be let go. But a teacher who may have had a successful, two-decade-long teaching career deserves to leave the system with adequate retirement savings.
With the simple reforms we propose, New York could give its teachers greater retirement security and a small increase in upfront compensation.
It’s time to redesign New York’s pension systems for the realities of the 21st century.
McGee, Laura and John Arnold Foundation vice president for public accountability, and Winters, a senior fellow at the Manhattan Institute, are authors of a new Manhattan Institute report: “Better Pay, Fairer Pensions: Reforming Teacher Compensation.”
