If you can tear yourself away for a moment from the endless news stories about tweets and executive orders, then by all means settle in and read this compelling new report by The Thomas B. Fordham institute.
“No Money in the Bank” does more than lay out the many dimensions of the public sector pension crisis in crisp, highly readable prose, though it does that very well indeed. What’s even more significant here is the elegance with which it elucidates how and why the current structure of teacher pension plans utterly screws young and early-career teachers.
The report begins by arguing that policymakers’ refusal to deal with this enormous and growing problem is almost —almost — rational:
Why take on a complex, costly issue that brings no short-term political gain and is sure to enrage many constituents? The reason is that the public pension crisis is already having a negative effect on real people, and it will keep getting worse. The most conspicuous victims are new teachers, people eager to enter a profession where they can make a difference for kids. The bargain used to be that a new teacher would receive mediocre pay but could count on a comfortable retirement.
Now most new teachers can expect mediocre pay and lousy benefits. Yet many of those new teachers are unaware that the job they’ve dreamed about doesn’t fulfill its part of the bargain. They will pay a portion of those mediocre wages into a pension system, and for most, that system will later fail to provide them with any actual benefits. What they receive in retirement will be worth less than what they put into the system while they were in the classroom.
Where the report really rolls up its sleeves is in its examination of one large district in each state, and how young teachers everywhere are getting the shaft. It examines at what point teachers in these districts reach the “crossover point –” when the benefits they can expect to receive exceed the amount they’ve invested over the years.
Since the focus of the blog is Colorado PERA, let’s look at how “No Money in the Bank” lays out the problems faced by a young teacher in Jeffco. The crossover point in Jeffco — after 21 years of service — actually bests the national median of 25 years. Still. That’s a long time to stay in one district to receive any real benefits from your investments.
Here are some more nuggets about the injustices faced by Jeffco teachers — and it’s no different anywhere else in Colorado:
- A Colorado teacher who leaves at any point before the vesting point of five years receives no pension benefits at all. Her pension wealth is zero, and after three years she has contributed $8,307 into the retirement system. She gets her money back, and presumably some interest.
- “If she leaves the system with at least five years of service, she has now vested and is eligible to start receiving pension benefits once she reaches retirement age. If she separates from the system after 15 years—the average experience of a teacher who leaves the profession — her pension wealth is $38,619, but at this point she has contributed a total of $76,425. Not only has she not yet reached the crossover point, but her pension wealth is only half of her cumulative contributions.”
- “After 21 years, a Jeffco teacher finally reaches the crossover point—meaning her benefits are worth more than her contributions. At that point, she will have contributed a total of $135,149 into the system and can expect lifetime pension wealth accrual worth $143,322. Her net benefit becomes positive, though small ($8,172).”
Understandably, it’s hard to get early-career teachers in their 20s to think about how they’ll live in retirement. Retirement seems a lifetime away. But a glance at some of the charts in this report might help open their eyes to how badly they’re treated by a system that incentivizes stagnation.