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ERIC Number: ED502293
Record Type: Non-Journal
Publication Date: 2008-May
Pages: 66
Abstractor: ERIC
Teacher Pensions: A Background Paper
Hansen, Janet S.
Committee for Economic Development
Pensions are an important but comparatively unexamined component of human resource policies in education. In an increasingly competitive world where employees are more mobile than ever, pension policies that were designed in the last century may be out of step with the needs of both individuals and schools. This background paper aims to foster understanding and informed discussion of public education pensions. It describes the current system; examines concerns about funding, sustainability, equity, and effectiveness; and discusses pension plan structures and some options for pension plan redesign. Like most state and local government employees, teachers are still covered largely by defined benefit pensions based on their final salaries and length of service. Such pensions have been replaced in many private sector firms by defined contribution plans. The legal and economic context is, however, substantially different for public and private sector pensions. Notably, a sizable minority of public sector employees are not covered by Social Security retirement benefits. State and local government pensions are "prefunded" to varying degrees. While most plans currently have some unfunded liabilities, analysts do not foresee a broad financial crisis in the public pension arena. Public pensions do, however, face some threats to their financial sustainability caused, for example, by employers' failure to make actuarial required contributions and by the future stresses that other unfunded commitments such as retiree health care will place on state and local governments. Distinct from the question of whether teacher pension plans are financially sustainable is the question of how fairly they treat all teachers they serve and what if any effect they have on schools' ability to find qualified staff. While traditional defined benefit plans with their back-loaded benefits treat long-serving teachers well, they tend to short-change individuals who do not work a full career in teaching or who move from state to state. The structure of teacher pensions may not only be inequitable for individual teachers but can contribute to teacher shortages by discouraging people from moving to schools where their skills and knowledge are most needed. The debate over whether public pensions need to be redesigned has frequently taken the form of an argument over whether defined benefit pensions should be replaced by defined contribution plans. Framing the question in this way obscures the fact that the boundaries between various types of pensions are porous, and plans can be designed to include a variety of features depending on the objectives being sought. Once these objectives are defined, various plan types and features can be examined to determine whether existing arrangements or some new combination would best meet those objectives. This paper raises some questions about objectives for teacher pension plans that merit re-examination, offers an initial look at some of the options available for rethinking teacher pension design, and describes one option, the defined benefit cash balance plan, that to date has received little attention in the public sector. Appendix tables report specific features of teacher pension plans. (Contains 57 endnotes, 2 figures, and 9 tables.) [This paper was prepared with financial support from the Donnell-Kay and Piton Foundations.]
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Publication Type: Reports - Evaluative
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: Committee for Economic Development
Grant or Contract Numbers: N/A