Pensions Are A Critical Tool for Recruiting and Retaining Teachers, Offer Best Path to Retirement

National Institute on Retirement Security – 10/26/2017 (reprinted)

by Kelly Kenneally
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WASHINGTON, D.C., October 26, 2017 –  A new report finds that defined benefit (DB) teacher pension plans work for both schools and teachers, and that there are important policy reasons to continue offering these retirement plans. The research indicates that pensions are unique in that they provide a financial incentive for teachers to stay on the job. As a result, schools have more experienced teachers in the classroom, which ultimately benefits students and education.
These findings are contained in new research from the National Institute on Retirement Security (NIRS), “Win-Win: Pensions Efficiently Serve American Schools and Teachers.” The research is authored by Dr. Christian Weller, professor of public policy at the University of Massachusetts Boston.
Download the full report here.
The research debunks false claims about defined contribution (DC) 401(k)-type plans and sets the record straight that pensions offer important incentives to retain experienced teachers while providing the best path to retirement security.
“The evidence is clear that pensions are a win-win for schools and teachers” says report author Christian Weller. “Pensions give schools an effective recruitment and retention tool because these retirement benefits provide a pocketbook incentive for teachers to stay on the job. This financial incentive is all the more important given that wages have eroded for teachers, which makes it harder for schools to keep experienced teachers. Schools and students benefit because teachers become better at their jobs with more experience.”
“Our nation’s schools face a growing shortage of teachers, and U.S. teachers are paid on average as much as 60 percent less than similarly educated professionals across the globe,” says Diane Oakley, NIRS executive director. “Pensions play an essential role in recruiting and retaining our best and most experienced teachers. It’s critical that states continue to leverage the magnetic effect of pensions to keep teachers in the classrooms and empower students to achieve their highest potential.”
School districts typically offer teachers a pension as part of their total compensation. The research finds that pensions:

• Give employers an effective recruitment and retention tool due to the way pension benefits reward longevity with an employer.
• Create meaningful incentives for effective teachers to stay on the job. The longer a teacher stays in the classroom, the larger the annual retirement benefit teachers earn each year. This deferred compensation is an economic incentive for teachers to stay in their jobs.
• Benefit student performance and the U.S. education system because experienced teachers are more productive and effective.
• Offer teachers a real path to retirement security because they encourage saving for retirement and overcome known obstacles to saving.
• Boost retirement incomes among lower-income and middle-income teachers. Automatic participation in a pension means that highly unequal tax incentives for retirement savings have only a limited impact on teachers’ retirement savings. The data shows that income inequality is less for retirees with DB benefits than for those without DB benefits.
• Deliver lifetime income benefits more efficiently than DC retirement accounts. Each dollar saved in a DB pension provides nearly twice the amount of retirement income than money invested in an individual savings plan because of lower costs and sharing key risks.
• Afford teachers a higher standard of living in retirement than would be the case for the same amount of savings in a DC account.

The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy as a whole. Located in Washington, D.C., NIRS’ diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available here.