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Teacher Pensions Underfunded
posted by: Alix | March 19, 2012, 02:58 PM   

For generations, the public school teacher retirement system has functioned as a back-ended plan where teachers receive a modest salary in exchange for lifetime benefits and a guaranteed pension. However, the shifting demographics of the profession coupled with financial realities has led many states to question the sustainability of the current model.

An estimated 1 million teachers are expected to retire within the next decade bringing in a new generation of educators. Add this reality to a struggling economy and you have major pension shortfalls in states across the country. According to a recent analysis by the National Council on Teacher Quality, a majority of states' teacher retirement funds are not just severely underfunded but financially unsustainable.

These revelations have led to difficult policy decisions. State leaders have debated fixes including moving teachers from the current system of pensions to 401(k)-style plans, raising the retirement age or even making teachers wait a decade to be vested in their plans. While these policies are commonplace in the private sector, their implementation in the public sector is causing waves.

While 401(k)-style plans are more portable and considered more attractive to educators anticipating an out-of-state move or career change, the shift would shake up the system significantly. State experts assert that pension policies impact the ability of districts to hire and retain teachers, and money used to shore up pension funds could mean tax hikes or come at the expense of funding for schools.

Many states are dealing with the debate now. In Kansas, where the Kansas Public Employees Retirement System projects a $8.3 billion gap, Governor Brownback is pursuing a plan to transition new hires into a 401(k)-style plan. Similarly in California, where teacher pensions are more the $50 billion in the hole, Governor Brown has proposed raising the teacher retirement age to 67 coupled with a hybrid 401(k) plan for new hires.

Last week, New York made headlines with the passing of a new pension reform law that is projected to save the state an estimated $80 billion over 30 years. Considered a bipartisan compromise, the law will modify public-sector benefits for newly hired state and local public workers via a greater employee buy-in, raised retirement age, and a 401(k) retirement system.

While moving toward a 401(k) system is a major shift, the teaching profession might be uniquely positioned to take on the transition in a positive way. As current teachers retire, and alternative certification programs bring new and seasoned professionals into the classroom, the flexible and portable 401(k) might be more conducive to the future demographics of the profession.

If an educator wanted to teach for a few years and then move on to a new career for example, or transition to another state, they would be able to take their retirement investment with them. Further, an experienced professional in retirement might be more likely to consider a stint in the classroom if they took on a higher salary in exchange for no investment in a retirement program. The flexibility and possibilities could open up the profession to embracing potentially effective teachers in different stages in their lives and careers.

Teachers across the country are warming to the idea. According to the 2011 AAE Membership Survey, 89% of member respondents would support a portable pension system that would allow teachers to take the pension money earned during their time in a school system to be rolled into a 401K in another job.

Clearly educators are not only recognizing financial realities but the possibility of flexibility within the system. As we move toward hybrid models, current and future classroom teachers must be considered in creating a system that is both fair and sustainable.

What do you think about 401(k) pensions for teachers?
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