The Center for American Progress has released two new reports that attempt to predict the outcomes of traditional defined-benefit pensions for teachers vs. cash-balance plans. Redefining Teacher Pensions: Strategically Defined Benefits for New Teachers and Fiscal Sustainability for All, by Raegan Miller, argues that since teachers are the single most important school-based resource affecting student achievement, all areas of compensation, evaluation, and tenure should be “fair game” for policy reform. Specifically, teacher pensions “should be subject to the outcome- and equity-oriented workforce goals of broader teacher reform programs,” which should attract more top graduates and career-changers to the profession, particularly those in STEM.
The second paper, Buyer Beware: The Risks to Teacher Effectiveness from Changing Retirement Benefits by Christian Weller, argues that it is not that simple. Changing teacher pension plans from defined benefit to cash-balance plans may have the reverse effect than that predicted by Miller. “Higher turnover and larger initial pay [the usual effects of cash-balance plans] work against each other with respect to average teacher effectiveness…more experienced and presumably more effective teachers will become more likely to leave their jobs in search of higher paying or more rewarding work.” They would be replaced by less experienced teachers, which would lower average teacher effectiveness. On the other hand, this effect could be offset by the “quality” of the new hires, like those mentioned by Miller.
Weller believes that changing pensions from defined-benefit to defined-contribution or cash-balance plans will depend on the size of the effects of the amount of turnover, the extent of the learning curve, and the reaction to initial compensation changes. He ran a simulation on the change, with the following outcomes/conclusions:
Average teacher effectiveness could decrease.
The risks for teacher effectiveness could be much greater than demonstrated in the simulation, since most simulations do not take into account the costs associated with higher turnover and transition costs.
Lowering teacher turnover could lower the risk of declining effectiveness.
Higher initial compensation has a limited impact on the risk of decreasing effectiveness.
There are substantial transition costs in switching retirement benefits.
For Miller, the pertinent point is that defined-benefit plans do not serve the overarching goal of education reform. She recognizes that pension policy “is not a potent lever, on its own,” but that it needs to be studied carefully to identify policies that “enable, catalyze, reinforce, or complement other policies sharing the goals of improving the overall quality of the teacher labor force and creating greater equity in the distribution of teaching talent.” Traditional plans, she argues, do not serve these goals. Therefore, she offers the following recommendations:
- Amend state constitutions subjecting any benefit-enhancing legislation to protracted, rigorous scrutiny.
- Amend ESEA so that district Title I, Part A funds are penalized in proportion to failure to make actuarially required contributions to defined-benefit pension plans.
- Redefine pension benefits for new teachers using a cash-balance approach that will leave existing defined-benefit plans alone, while also “loosen[ing] the grip that the traditional salary schedule has on teacher compensation in the broadest sense.”
To read Miller’s full report, please visit http://www.americanprogress.org/issues/2011/09/redefining_teacher_pensions.html
To read Weller’s full report, please visit http://www.americanprogress.org/issues/2011/09/buyer_beware.html
