New Report Ranks Teacher Pensions on Key Metrics

With more than 3 million public school teachers in the U.S. workforce, public teacher retirement is a broad retirement security issue for Americans, according to the nonprofit group Bellwether Education Partners.

A sizable new analysis published by Bellwether Education Partners argues public teacher retirement planning is not just an education issue; rather, the health and effectiveness of public teacher pensions are broad economic issues impacting all Americans.

Bellwether Education Partners is a national nonprofit focused on “dramatically changing education and life outcomes for underserved children,” according to its website, a goal the organization pursues through policy engagement and the promotion of best practices. Its new report, “Teacher Retirement Systems: A Ranking of the States,” presents a ranking of public teacher pensions according to a variety of metrics, considering outcomes both for teachers themselves and for taxpayers.

“With about 3.2 million public school teachers and millions more retirees, teacher retirement is a broad retirement security issue for Americans,” write report authors Max Marchitello, Andrew Rotherham and Juliet Squire. “Contrary to much of the political rhetoric for and against defined benefit [DB] pension plans, these plans are not ‘gold-plated’ for most teachers. In fact, many people who teach, even for substantial amounts of time, never see a pension at all.”

Taxpayers, too, have a stake in pension systems that are supported with public dollars and often have displacing effects on public finances, the report states, suggesting the rankings are an attempt to reduce confusion and misinformation and show how states are balancing the needs of various constituents.

“To show how well retirement plans serve various constituent groups, we assess them for four profiles. [These are] short-term, medium-term and long-term teachers, as well as taxpayers,” the report explains. “This approach shows that there are no ‘right’ answers for reform, just trade-offs. Unfortunately, reforms to date have nibbled around the edges of the challenges with pensions. Piecemeal efforts to increase contribution rates, reduce benefits for new teachers, raise the retirement age or modify benefit formulas have slowly eroded benefits for teachers but failed to address the fundamental challenges in how teacher retirement plans are structured.”

The report warns that even states that have made structural shifts by creating hybrid or defined contribution (DC) plans have not necessarily created high-quality options for teachers.

As explained in the executive summary, a state with an ideal teacher retirement system would earn 100% of its possible points. In the overall rankings, South Dakota comes closest to the ideal system, emerging as the leading state with an overall score of 88.4%. Tennessee, Washington, Utah and New York are also in the top five states. On the other end of the spectrum, Pennsylvania, Connecticut, Kentucky, New Jersey and Illinois make up the bottom five with scores ranging from 34.9% to 43.3%.

The authors stress that these overall scores mask variations in how each state serves different constituent groups, which is to say some states emerge with particularly strong ratings for short-term teachers, while others score much better for long-term teachers or taxpayers.

“Consequently, these rankings are designed to be used comprehensively across constituent profiles, rather than by looking at one profile at a time,” the summary emphasizes.

The new report includes a highly detailed state-by state analysis that covers such data points as each state pension’s amortization rate and its vesting period, as well as its ability to serve the aforementioned constituent groups.

The report explains that South Dakota’s strong overall score reflects reasonably strong scores across all four dimensions, and its scores differ from other states in two ways. First, its strong ratings on amortization cost, amortization period, normal cost of benefits and overall funding level suggest lower liabilities and good fiscal management. Second, its strong scores on vesting period and interest credit on early withdrawal suggest higher-than-average portability for short-term teachers.

As the report states, Tennessee’s high ratings for long-term teachers balance out much weaker scores for short-term teachers. Its relatively strong score on overall funding level counteracts its lack of an alternative retirement option and relatively low rating on interest credit on early withdrawal, the authors note. It also says Washington, for example, scores less well than South Dakota on vesting period and normal cost of benefits, yet its relatively strong alternative retirement option partially offsets these issues.

“All three states at the bottom of the rankings lose significant ground against their peers on variables related to unfunded liabilities,” the report states. “Amortization cost, the state’s contribution versus actuarially determined employer contribution and the plans’ overall funding levels are substantial issues. Illinois and Kentucky also fare poorly because, in addition to other problems, the states do not participate in Social Security for teachers.”

This affected their report ratings for Social Security, and, because their plans do not provide commensurately high benefits to counteract the lack of Social Security, this also affected the states’ scores for providing adequate benefits after 15 years of service and at retirement.