A new report from Bellwether Education Partners assess state teacher pension programs, ranking Washington third best in the nation. (For background on BEP see here.) The table above is from the report.
Teacher retirement plans are not just an education issue. With about 3.2 million public school teachers and millions more retirees, teacher retirement is a broad retirement security issue for Americans. And contrary to much of the political rhetoric for and against defined benefit pension plans, these plans are not “gold-plated” for most teachers. In fact, many people who teach, even for substantial amounts of time, never see a pension at all. Taxpayers, too, have a stake in pension systems that are supported with public dollars and often have displacing effects on public finance. The State Teacher Retirement Rankings are an attempt to reduce confusion and misinformation and show how states are balancing the needs of various constituents.
To support broader understanding of the challenges of teacher retirement systems, the State Teacher Retirement Rankings cut through the complexity to provide information to help more people better understand how these systems work and don’t work for teachers and taxpayers. To show how well retirement plans serve various constituent groups, we assess them for four profiles: short-, medium-, and long-term teachers as well as for taxpayers. This approach shows that there are no “right” answers for reform, just trade-offs.
The report goes into some detail on methodology, which re recommend to those who want to dig deeper.
A state with an ideal teacher retirement system would earn 100% of its possible points. In our rankings, South Dakota comes closest. It emerges as the leading state with an overall score of 88.4%. Tennessee, Washington, Utah, and New York are also in the top five states. Pennsylvania, Connecticut, Kentucky, New Jersey, and Illinois make up the bottom five with scores ranging from 34.9% to 43.3%. Importantly, however, these overall scores mask variation in how each state serves different constituent groups; some states emerge with particularly strong ratings for short-term teachers, while others score much better for long-term teachers or taxpayers. Consequently, these rankings are designed to be used comprehensively across constituent profiles, rather than one profile at a time.
Money magazine writes,
The authors compare states with pensions alongside states with these alternative plans, ranking the plans based on 15 variables, including investment returns, annual contribution rates, how well a state’s system is funded, how long teachers have to pay into the system before qualifying for benefits and how much teachers can expect to receive after retiring.
“Everyone has room to grow,” says Andrew Rotherham, cofounder at Bellwether and an author of the report. “The laggard states are really laggards, but even the best states have things they can do to improve.”
The stakes for teachers’ retirement security are high: For one thing, teachers in more than 12 states — some 40% of all teachers — do not qualify for Social Security, meaning they may not have any guaranteed income in retirement. (In this way, they’re like certain other local and state workers who are excluded from the program.) While some long-serving educators receive a comfortable pension to make up for that, many other teachers leave before they qualify for a full payout.
Money also notes criticism of the Bellwether approach.
One of the challenges of ranking state retirement plans, says Jean-Pierre Aubry, director of state and local research at the Center for Retirement Research at Boston College, is that what qualifies as ‘good’ will depend in part on the goal of the plan.
Overall, Aubry called Bellwether’s analysis thorough and well-documented, but he worried that it was “missing the forest for the trees.”
The authors considered so much minutiae about the plan designs to be able rank the states, he said. But that’s not necessarily what policymakers or teachers themselves focus on, he says. The big questions — What does the benefit pay in retirement? What does it offer to people who switch careers before full retirement? And how is the cost split between the employer and employee? — get somewhat lost.
Nari Rhee, director of the retirement security program at the UC Berkeley Labor Center and one of the authors of the analysis of state plans, thought Bellwether’s approach of identifying relevant factors for different stakeholders was sound. And she listed a similar set of priorities when asked to define a quality pension plan for teachers: a vesting period of no more than five years, a cost-of-living adjustment to payments after retirement, a funding policy that requires the state to make the recommended contributions into the system.
But Rhee, who reviewed a copy of the rankings ahead of their release, said it was difficult to compare defined contribution and hybrid plans alongside pension plans without calculating the likely salary replacement rates under all three plans.
Good points, certainly. It’s a complex subject, to which the Bellwether report supplies useful additional information for consideration, even as it raises questions unanswered in the research.