Afton Partners

New research from the University of California, Berkeley Center for Labor Research and Education and the National Institute on Retirement Security, comparing teacher pension plans and 401K-style accounts in six states, concludes that pensions generally provide greater value to teachers and play a critical role in retaining educators. However, since the market crash in 2008, 48 states have made changes to their pension plans as have many companies across the nation. Many states are now facing unfunded liabilities that range from mildly concerning to nearly catastrophic. These unfunded liabilities are threatening the security of some pension plans and causing states to divert money from other services, including education, to keep pace with funding the plans.

A district of over 13,000 students in Illinois ratified and approved a collectively bargained teacher contract months ahead of schedule. The contract fell within district budget projections, eliminated the traditional salary schedule, and rewarded teacher performance. In a post-Janus era, this type of collaboration could be increasingly valuable. Those involved noted that there were many factors that contributed to their success, but outlined seven essential steps that can now serve as guideposts for other districts interested in thinking about compensation differently.

The wage gap between teachers and comparable professionals has grown over time, with teachers now earning 18.7 percent less than other college-educated workers, according to a new analysis. A new paper published by the Economic Policy Institute, a nonpartisan think tank supported by labor unions, found that the “teacher wage penalty” has increased significantly—teachers earned just 1.8 percent less than comparable workers in 1994. And although teachers do receive better benefits packages than their college-educated peers, those benefits only mitigate part of the gap: Including benefits, teachers face an 11 percent compensation penalty.

School districts are spending bigger chunks of their budgets on staff benefits, leaving less money to spend in the classroom, a new study finds. Nationally, from 2005 to 2014, instructional spending increased by 2.6 percent, while spending on benefits for instructional staff members grew by 24 percent. Since education budgets have been largely flat, this means that spending on benefits is eating up more of districts’ money, and fewer dollars are making it into the classroom. Benefits are largely composed of health care and pension costs. Over the last decade, spending on teacher health-care benefits is up 30 percent, and spending on teacher retirement costs is up more than 50 percent, according to the report.

Related, this article summarizes the report’s recommended steps to addressing the problem: “Skyrocketing Spending on Benefits Hurts Teachers and the Schools That Employ Them. 4 Steps Toward Fixing That.”

Finally, for a specific example of the impact of the increasing cost of healthcare, see “LAUSD Is Now Diverting $2,300 Per Student to Cover Health Insurance Costs — 36 Percent More Than 5 Years Ago. Why the School Board Is Rushing to Avert a ‘Fiscal Cliff’”

Thanks to decades of mismanagement by politicians from both parties, Connecticut has one of the largest pension funding deficits in the country, amounting to one fifth of its annual economic output. The system needs a complete overhaul. Fortunately, models exist. Consider New Brunswick, Canada, which moved to a shared-risk system in 2012. Instead of promising full, generous pensions, the government guarantees only a “base” level of benefits and pays added “ancillary” benefits if circumstances allow. Regular stress tests determine what the government can afford: If it falls short, it can increase required contributions or reduce benefits — within a narrow, agreed-upon band. If performance improves, the changes are reversed in an agreed-upon order.

California’s public schools have enjoyed a remarkable restoration of funding since the bone-deep cuts they endured during the recession, but many are now facing a grave financial threat as they struggle to protect pensions crucial for teachers’ retirement.  Over the next three years, schools may need to use well over half of all the new money they’re projected to receive to cover their growing pension obligations, leaving little extra for classrooms, state Department of Finance and Legislative Analyst’s Office estimates show. This is true even though the California State Teachers’ Retirement System just beat its investment goals for the second straight year.

Teacher salaries are flat partly due to rapidly rising pension costs.  As an exercise to see just how much rising teacher pension costs have harmed today’s teachers, imagine a hypothetical world where pension contribution rates had been frozen at their 2001 levels.  At the time, states were living high off the dot-com bubble while simultaneously cutting contribution rates to unsustainably low levels and enhancing benefit formulas. Nearly every state has subsequently been forced to reverse this trend by increasing contribution rates and cutting benefits.  In this hypothetical world, states and school districts would be able to spend about $4,300 more per teacher per year, equivalent to giving each an immediate 7.2 percent raise.  But that’s not all — 37 states and the District of Columbia have increased mandatory teacher contribution rates into their state’s pension plan. That’s effectively a cut in teacher take-home pay, and it works out to an average of about $800 a year.

The National Education Association is projecting a nearly 8 percent membership loss over the course of the next school year, along with a $28 million budget reduction, due to an adverse Supreme Court ruling. Last week, the Supreme Court ruled to prohibit public-sector unions in 22 states from collecting “agency” or “fair share” fees from nonmembers. Those fees were meant to cover the cost of collective bargaining. The decision is expected to lead to an exodus of members from the teachers’ unions since people can now be represented in collective bargaining without having to pay anything.