Public-sector pension plans are deep in debt, to the tune of more than $1 trillion. That story is known, and it gets re-told every year through headlines with new data showing just how much rising pension costs are cutting into government budgets.
But the plans responsible for the retirement security of millions of public employees, many of them teachers, have another problem you probably haven’t heard of. The truth is, millions of workers may not even know they’re losing out due to a bigger, slower-moving problem.
Only about half of all new teachers will stay long enough to qualify for a pension at all, and fewer than one in five will reap the large back-end rewards promised by the plans.
In a new analysis coming out this week, we set out to grade teacher retirement plans in all 50 states and Washington D.C. on two questions:
One, are all of the state’s teachers earning sufficient retirement benefits? And two, can teachers take their retirement benefits with them no matter where life takes them? The results are, to be frank, pretty dismal. Three states earned Cs, six (including New York) earned Ds, and the rest earned Fs.
Why were we such harsh graders? The short answer is we believe public school teachers deserve better. After surveying teacher retirement plans, we found that states have, by and large, done a terrible job of creating fair, secure, portable retirement benefits for all teachers.
Even if a state’s public pension plan is well-funded, that says nothing about whether it is good for employees. Often, it may even be the opposite — unfair, or even predatory.
New York is one such example. Its teacher pension plan is nearly fully-funded, a rarity amongst debt-ridden plans nationwide. Yet it earns that distinction, in part, on the backs of its employees.
When considering only cost variables, the New York State Teachers’ Retirement System looks pretty generous. Unlike other states, New York schools are not diverting a significant share of their pension contributions to pay down unfunded liabilities, and they are contributing over 11% of each teacher’s salary toward benefits, the fourth-highest rate in the country. That amount should be sufficient to provide all teachers with secure retirements.
But that 11% isn’t distributed to all teachers equally, like it would be in a 401-k-style plan. Rather, it’s an average across all teachers statewide. Some teachers earn even more than that, while most will see far less. Ignoring how those benefits are distributed leads to some false conclusions.
In the case of New York, the state requires its new teachers to stay for 10 years before qualifying for any employer-provided retirement benefits. That would be illegal in the private sector, where federal laws cap at seven years the maximum time workers can be forced to wait.
There are no such protections for public sector workers like teachers. Six in ten New York teachers will not stay the full 10 years and will fail to qualify for a pension. That is, one reason New York’s teacher pension system appears well-funded is because it’s not providing any benefits at all to more than half its presumed beneficiaries!
How is that fair?
New York is not an outlier. Fifteen other states withhold employer retirement benefits for teachers until they complete 10 years of service. If teachers leave to work in another state, pursue a career outside the classroom or decide to work at home, they forfeit all the contributions their employer made on their behalf. These teachers, many of whom are just beginning to save for retirement, forfeit thousands of dollars in lost compensation in the form of unseen employer contributions.
Even if a New York teacher does stay for 10 years, qualifying for some pension does not guarantee it will be a good pension. In New York, a young teacher must stay 24 years before her pension will finally be worth at least her own contributions into the plan plus interest. Only 33% of New York teachers make it this far because, for most, life intercedes.
Recent state pension reforms, focused mainly on cutting costs, have made the benefit situation worse. By trying to preserve the underlying pension structure, New York and other states have forced new teachers into progressively worse plans. That may help address the cost side, but just because a retirement plan is called a “pension” doesn’t mean it’s good for workers.
Aldeman is a principal at Bellwether Education Partners and the editor of TeacherPensions.org. Schmitz is an analyst at Bellwether Education Partners.
![In a narrow vote this week, the Federal Trade Commission approved a rule that will ban the vast majority of noncompete clauses by U.S. employers, which have long prevented workers from switching jobs or setting out on their own. In doing so, the agency did its duty to protect American economic dynamism and opportunity, nothing less, nothing more. We hope that’s the clear conclusion of the courts that will now rule on a lawsuit being brought by the Chamber of Commerce, which has strenuously supported this anticompetitive practice. Of the arguments that the business group and other opponents have rolled […]](https://www.nydailynews.com/wp-content/uploads/2024/04/GettyImages-1820955015.jpg?w=490 "In a narrow vote this week, the Federal Trade Commission approved a rule that will ban the vast majority of noncompete clauses by U.S. employers, which have long prevented workers from switching jobs or setting out on their own. In doing so, the agency did its duty to protect American economic dynamism and opportunity, nothing less, nothing more. We hope that’s the clear conclusion of the courts that will now rule on a lawsuit being brought by the Chamber of Commerce, which has strenuously supported this anticompetitive practice. Of the arguments that the business group and other opponents have rolled […]")