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Research shows having a high-quality teacher is the single most important in-school factor affecting the academic success of our kids. That means it's essential that states, policymakers and school districts do everything to attract and retain the most qualified individuals to the teaching profession. One of the most direct ways to encourage highly effective individuals to become teachers is to provide them with an attractive compensation package. It should offer competitive starting salaries and opportunities to be rewarded for excellent work through performance-based pay. In addition, school districts must be able to offer retirement plans that are fair, competitive with other professions, and portable. These are not characteristics of defined benefit plans the most common type of retirement plans currently available to teachers.
Defined benefit plans promise a predetermined annual benefit based on a combination of years of service and salary, versus the actual amount of money contributed by the employee, the employer and what was earned through the plan's investments. While this might provide security to teachers at the end of their career, such plans do very little to support teachers during the first two decades of their work. Teachers, who leave or transfer before retirement age, typically after 20 to 30 years of working in one system, risk losing a significant portion of their retirement savings. Consider these facts:
- Over 40 percent of new teachers are career changers.1
- Sixty-six percent of 18-to-29-year-olds anticipate changing careers in their lives, and nearly six in 10 of those employed have already switched careers.2
The need for pension reform is urgent. As of 2010, the "gap" between states' available assets and their obligation for all public sector pension benefits was $1.38 trillion, up nearly 9 percent from fiscal year 2009. Over half the gap, $757 billion, was related to pension promises and the remaining $627 billion was related to retiree health care.
Some states have started to make changes. Over the past few years, 34 states have increased the contribution amounts current and future retirees must pay. And at least 33 states have increased the age by which someone can retire or the number of years they must work to receive full benefits. However, such efforts do little to address the underfunding crisis. But they do hurt the existing workforce and fail to attract top talent to teaching.
It is critical that states and school districts make portable retirement plans - like a cash balance plan or a defined contribution plans - available to teachers. These will make retirement plans more sustainable, provide teachers with career flexibility and make teaching a more attractive career option. In the end, that's good for teachers and the children in their care.
1. Miller, Raegen. 2011. "Redefining Teacher Pensions". Center for American Progress. Available at http://www.americanprogress.org/issues/2011/09/pdf/teacher_pension_reform.pdf
2. Pew Research Center. 2010. "Millennials: Confident. Connected. Open to Change". Available at http://www.pewsocialtrends.org/files/2010/10/millennials-confident-connected-open-to-change.pdf