Win-Win: Pensions Efficiently Serve American Schools and Teachers

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.

Win-Win: Pensions Efficiently Serve American Schools and Teachers 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.

The research is authored by Dr. Christian Weller, professor of public policy at the University of Massachusetts Boston.

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.

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.