Pension Reform

For Retirement Security, K-12 Teachers Should Embrace Higher Ed Model

California school districts are now required to disclose their share of the Golden State’s mounting debt for teacher pensions. In the past, this unfunded liability was only reported collectively, by the California Teachers Retirement System (CalSTRS) and the California Public Employees Retirement System (CalPERS).

The new disclosure requirement is a positive development, as it might help California teachers understand just how severely underfunded their pensions are. K-12 educators should consider the relative security their counterparts in higher education enjoy. The difference is, in higher education, modern, 401(k)-style plans – often administered by TIAA-CREF – are the norm.

For those who are particularly risk-averse, annuity products can replicate the guaranteed retirement income that defined-benefit systems traditionally have provided. Unlike the stark reality of today’s K-12 teacher pensions, however, most privately-administered annuity plans for higher education faculty are extremely well-funded.

In a modern, defined contribution system, all workers and retirees get an annual report on the status of their pension investments. Future retirees know if their employer ever underfunds the pension system. They additionally have the option of choosing different investment options.

Under the current system, many educators will not realize how vulnerable their defined benefit programs are until they begin seeing fellow teachers laid off, as pension obligations increasingly crowd out classroom spending. Alternatively, teachers might retire only to see their benefits cut for lack of funding.

The California Legislative Analyst’s Office estimates that school districts currently devoting 8.26 percent of their budgets to CalSTRS in 2016 can expect to pay 19.2 percent in 2020. These funds, sadly, will be taken from the classroom. In other words, 20 percent of “education” money will not go to current teachers or students; instead those dollars will just go to pensions.

For the sake of current and future teachers – not to mention the kids they serve – K-12 educators and their union representatives would do well to seriously consider the defined contribution model that has served higher education so well.

This article was first published by The Huffington Post on March 10, 2016.

In Depth: Pension Reform

Modern, 401(k)-style plans are now commonplace in the private sector. For state workers, however, traditional pensions are still the norm. As former Utah State Senator Dan Liljenquist wrote in Keeping the Promise: State Solutions for Government Pension Reform, this is not a partisan issue, but a math problem. State Budget…

+ Pension Reform In Depth