Are teachers losing out on thousands of dollars in potential extra pay because states are behind on maintaining pensions?
In a new study released by TeacherPensions.org, Chad Aldeman relied on federal data to compare the wages and benefits of public-school teachers to those of other workers. He found that states and districts on average put 12 percent of teacher salaries toward the pension programs millions of school employees rely on for their retirement. That means more than $6,800 public dollars per teacher go toward supporting the pension funds states and districts promised to maintain.
In addition to that 12 percent, states and districts contribute on average 5 percent of teacher pay toward the pension benefits they’ll actually see come retirement—a rate that’s considered above average in the private sector. Without the $6,800 in “pension debt,” Aldeman contends public-school systems could spend that money on teacher salaries or other instructional material to improve student outcomes.
“I don't think teachers fully recognize how much the retirement system is costing to essentially keep it afloat,” Aldeman said in an interview.
Pensions are complicated financial instruments that have a lot of moving parts, but broadly they are promises an employer makes to employees for how much money will be available as soon as they retire. That’s virtually the opposite of the more popular retirement instruments today—the 401(k) and similar tools—that place the onus on individuals to invest in a way that will yield the retirement money they think they’ll need. Sure, many employers help out with matching contributions to a worker’s retirement fund, but there’s no certainty the stock market will stay on pace to net the worker the desired nest egg. Pension managers, on the other hand, have to “figure out how much they'll need to contribute today in order to have money to pay those benefits in the future,” explained Aldeman. “And it requires a lot more assumptions about how fast the money is going to grow, what the benefits will actually be worth, how long teachers will live in retirement, how much salary they'll make in the future.”