My daughter wants to become a teacher someday because, like many in her chosen field, it’s her passion. So, naturally, I am concerned about teacher compensation. I realize that future educators, like my daughter, typically don’t get into the field for just the money. Teachers might not make a huge salary, but they do receive a pension they can count on when they retire. Or do they? The reality is that public-sector pensions are in trouble across the board, including teacher pensions.
A teacher’s retirement system, which is typically the pension system, is only as strong as the states and school districts that help fund it. A report published by the National Council on Teacher Quality found that teacher pension systems were severely underfunded in all but seven states. The NCTQ believes, based on its findings, that pension systems across the country are in crisis.
How Pensions Work
The way a teacher’s retirement system typically works in most states is that when teachers retire after putting in a certain amount of years, they receive a guaranteed monthly payment for the rest of their lives. Usually teachers contribute to their pensions; their state and school district also contribute. Sometimes, teachers don’t contribute at all and only the state or school district does.
Pensions in Trouble
Teacher pensions are in trouble for two main reasons: state governments often have not funded the pensions to the extent they were required, and the pensions have been receiving low investment returns. Many pension plans counted on a 7 to 8 percent return on invested money, but 2012 figures, for example, were typically much lower than that. California’s rate of return on investments in the teacher pension fund for 2012 was only 1.8 percent, according to the NCTQ. Those factors led to underfunded pensions, which should, ideally, be 100 percent funded. The further below 100 percent a pension is funded the more trouble it’s in. Not enough money is being set aside to fund the pensions.
One State’s Example
Illinois made headlines because of its fiscal difficulties, the worst in the country for 2013. All its pension funds, including teacher pension funds, are underfunded. Public employee unions in that state argue that the Constitution guarantees their retirement benefits. So far, there has been no resolution to the problem.
Many young teachers just entering the field worry that there won’t be enough money in state pension funds to provide all the benefits they are entitled to. And worry they should. One solution might be to offer teachers a higher salary in exchange for smaller pensions, as Joel Klein, former chancellor of the New York City public schools, suggests. My daughter would also be happy with that solution. In the meanwhile, states should prevent politicians from using money that is supposed to go to funding teacher pensions to fund other budget items. But I’m not holding my breath for that to happen any time soon.