Why states shouldn’t adopt defined-contribution pensions

By Felix Salmon
March 1, 2011
Steven Greenhouse has a long article in today's NYT about an attempt by the states to deal with their "strained" pension funds by moving to defined-contribution pension plans. Here's the lede:

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Steven Greenhouse has a long article in today’s NYT about an attempt by the states to deal with their “strained” pension funds by moving to defined-contribution pension plans. Here’s the lede:

Lawmakers and governors in many states, faced with huge shortfalls in employee pension funds, are turning to a strategy that a lot of private companies adopted years ago: moving workers away from guaranteed pension plans and toward 401(k)-type retirement savings plans.

What’s a “huge shortfall”? Amazingly, nowhere in the 1,500-word article does Greenhouse actually say. Instead, we get incomprehensible tales like this:

Utah decided to adopt a 401(k)-type plan after the stock market plunge in 2008 caused the shortfall in the state’s pension plan to balloon to $6.5 billion…

Under the new plan, [state senator Dan] Liljenquist said, the state’s retirement contributions for new workers will be roughly half that for current employees, potentially saving $5 million a year for every 1,000 new workers hired.

So, the state of Utah has been putting insufficient money into its pension plan, and now there isn’t enough money there to meet upcoming liabilities. And the solution here is for the state, in future, to contribute “roughly half” of what it’s been spending up until now in pension contributions.

Needless to say, this makes no sense on either front. The liability to existing workers doesn’t go away if a different plan is adopted for new workers, so the problems at the pension plan aren’t being addressed. On top of that, it’s hard to see how contributing much less to new workers’ retirement is going to help them at all, either. From a pensions perspective, there’s no winner at all: the only entity better off is the state, from a cashflow perspective.

On top of that, Greenhouse makes no attempt to put numbers like $6.5 billion or $5 million in any kind of context. Are they big? Who knows.

The only way I could make any sense at all of Greenhouse’s article was to read it in parallel with Dean Baker’s paper on the origins and severity of the public pension crisis. The table he includes, which includes all state public pension funds, is invaluable; here, for instance, is Utah.

utah.jpg

What this shows is that the Utah pension fund, at the end of 2009, was about $2.8 billion in the hole. If it rose by 15% in 2010, which is a pretty reasonable assumption given the performance of the stock market, the gap is likely to have been all but eliminated. But even the gap at the end of 2009 was less than one tenth of one percent of Utah’s state income.

All of these numbers are fuzzy, of course. Valuing assets is hard enough; coming up with a present value of future liabilities is much harder, and depends crucially on which discount rate you use. But Baker’s numbers are pretty reasonable, and show that there really isn’t anything to panic about here.

More generally, as Teresa Ghilarducci notes elsewhere on the NYT website (but not in the paper), the idea that moving from defined-benefit to defined-contribution plans is going to help anybody at all is highly problematic.

401(k) plans are bad deal for taxpayers. Dollar for dollar, a traditional pension plan yields more pension benefits than do 401(k) plans because 401(k) management and investment fees are three times higher. And professionals who manage money in pooled pension funds usually get higher returns than workers who manage their own 401(k) accounts. The only clear winners when pensions switch over to the 401(k) plans are brokers and bankers…

The unintended effect of widespread 401(k) plans is more volatility. In contrast to traditional pensions and Social Security, 401(k) plans fuel bubbles and make recessions worse. When the economy is booming, 401(k) plan asset values soar, making people spend more and work less. Not what you want in an expansion.

Worse, when the economy plummets and takes 401(k) assets with it, people do the opposite; they cling to the labor market and rein in spending – again, two things you don’t want in a recession.

On top of that, defined-benefit plans have a mutual-insurance component to them: shorter-lived workers subsidize longer-lived workers, helping to increase everybody’s standard of living.

The fact is that the states’ move to defined-contribution plans is a blatantly political one, born of Republican ideology conflating such plans with individual freedom and choice. For rich professionals who jump from job to job every few years, 401(k) plans do make a certain amount of sense. For public servants spending a lifetime in the police force or in elementary schools, by contrast, they emphatically don’t. As for the state pension plans, the only way that the state governments can help them make up their actuarial liabilities is if they pour more money into them. Not less.

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Comments
27 comments so far

There should be some kind of combined approach possible. Defined contribution does not have to mean individually owned and managed, 401(K) style approaches. What it should mean is that the state pension plan has to be funded pay as you go; the amount contributed each year is defined, and the benefits that are paid out vary based on the value of the fund. All the benefits of the state managing the fund, and smoothing returns over time, can be maintained without including a defined benefit requirement that causes state liability to balloon in times of distress. The current system gives the government and the covered workers too many incentives to underfund the pension now, knowing that future taxpayers will have to make up the difference.

Posted by MattJ | Report as abusive

Well sure defined benefit plans make sense for the recipients, but do they make sense for the providers? Companies have decided they don’t – to the point where you can’t get a defined benefit plan outside the government. The relevant question is why should janitors cleaning factories get (at best) a 401k plan and school janitors get defined benefits?

Posted by Mr.Do | Report as abusive

ditto MattJ – very well said, sir.

also, re: “And professionals who manage money in pooled pension funds usually get higher returns than workers who manage their own 401(k) accounts.” the problem is that the returns are still not high enough to match the aggressive assumptions needed for the funds to not end up underfunded. These guys are STILL using 8+% annualized returns! pfooey.

Posted by KidDynamite | Report as abusive

Yes, what MattJ said.

It’s certainly true that substantial changes to government pension benefits will take decades to realize cost savings. However, there is the perception that a government job includes entitlements that the taxpayers pay for, that are not available to the vast majority of taxpayers. There is more than a kernel of truth to that. The most visible aspects are the defined-benefit pension and the low-cost/no cost highly valued health care benefits (health care benefit reform will have a more immediate return). The fact of the matter is that the world has changed, and government service benefits have not changed with it, and it’s not clear that they ever will.

And don’t fool yourself that politics isn’t playing a much larger role in this. There are many public sector workers (the percentage is increasing faster than the population), and they tend strongly to vote for those who support expanded benefits for, well, public sector workers. The rest of us, with some justification, see a rigged game here.

Your comment that government workers are more entitled than private industry professionals to defined-benefit professionals is unsupported and overgeneralized, really a throw-away remark that is unworthy of you.

Posted by Curmudgeon | Report as abusive

As per the pensions due to those “public servants [who spend] a lifetime in the police force or in elementary schools…”, Daniel DiSalvo reports:

“In New York City, firefighters and police officers may retire after 20 years of service at half pay—which means that, at a time when life expectancy is nearly 80 years, New York City is paying benefits to 10,000 retired cops who are less than 50 years old. Those benefits quickly add up: In 2006, the annual pension benefit for a new retiree averaged just under $73,000 (and the full amount is exempt from state and local taxes).”

http://www.nationalaffairs.com/publicati ons/detail/the-trouble-with-public-secto r-unions

Posted by dedalus | Report as abusive

“the only way that the state governments can help them make up their actuarial liabilities is if they pour more money into them. Not less.”

Step 1 is to reduce the growth curve of actuarial liabilities going forward. In business school they said when you find yourself in a hole you need to stop digging.

One way to do that would be to eliminate the penison benifit to all new workers replacing it with a 403b plan that costs 1/4 to 1/2 of what the current pension system costs. States can then use that savings to pay down the massive shortfalls they have already run up.

No one is debating that pensions are a better deal for workers… the question is how do you prevent them from being gamed (100% income replacement at 55 type crap) or mismanaged by politians looking to push pain forward (ie compound the problem.)

Defined contribution systems are much better in both those respects. They also allow people to change jobs without a massive disincentive. In many cases 50% of a pensions NPV accrues in the last 5 years of employment. That encourages people who would rather change jobs and do something else to cling on for dear life because they understand in the last 5 years their accrual of retirement benifits is worth almost as much (and in extreem cases MORE) than their salary.

Posted by y2kurtus | Report as abusive

One problem with “defined benefit” plans is that the rules are heavily slanted in favor of “lifetime employees” and against those who follow different career paths. For example, a teacher in Massachusetts who works for 20 years in the public schools and then leaves for private employment has two options:

(1) Withdraw the contributions, plus 2% interest, from the retirement fund. Roughly $130k total on an accumulation that (at 8% compounded return) would come to more than $230k. The remaining $100k of value is forfeit.

(2) Wait another 20 years and accept a small pension. Unfortunately the value of the pension is based on the final three years of employment, which by the age of retirement are likely to have been seriously eroded by inflation.

Thus defined benefit plans are a trap. Once you have been in the system sufficiently long (paying a contribution that supposedly fully funds the benefit), you forfeit half your accumulated benefit if you leave.

My own situation was also less than ideal. I entered teaching late (ten years of post-secondary education). Then chose to take several years off from full-time employment for raising my family (likely another ten years when all is said and done). These are voluntary choices, obviously, but as a result I would have been paying MORE than the actuarial cost of my retirement benefit. So I left public teaching, left the system, and invested what I was allowed to take out on my own.

Why should anybody be forced to pay MORE than the actuarial cost of the supposed “benefit”? Even worse, then have to endure the uneducated public complaining about that situation?

Posted by TFF | Report as abusive

Note also that in many cases, “defined benefit” plans cost the state much less than would a simple 401k arrangement.

If they switch to a “defined contribution” plan, they’ll need to start contributing to Social Security. That’s a 6% contribution on the entire payroll that (for now) the schools are escaping.

If the state/schools had loyally made a 6% contribution each and every year, there wouldn’t BE a pension deficit. So while the change would solve the problem of the pension gap, it does so by forcing employers to make an adequate contribution in a timely fashion instead of “pushing the debt down the road”.

Maybe the situation is different for police and firefighters.

Posted by TFF | Report as abusive

Finally, I’m thankful that Felix doesn’t run the world.

I would rather take responsibility for my own financial situation than allow some soft-headed political hack to manage it for me.

Every dollar that gets stolen from my paycheck, whether for Social Security, a pension plan, or straight taxation, is a dollar that has left my control and might never be returned. If it isn’t an actual account with my name on it, there is always a chance that somebody in the future will decide that I don’t deserve to have it.

Posted by TFF | Report as abusive

TFF raises the issue I wanted to raise, but I also wanted to note that it is not an essential ingredient of a defined-benefit plan that it screw short-term employees, it’s just the way that such plans that currently exist are structured. Allow individuals to earn a fixed deferred annuity from the state each year that they work that has an actuarial value that isn’t heavily back-loaded; perhaps require a certain minimal pension benefit and allow people to buy into it to a greater extent if they wish, and provide a 401(k) equivalent in addition. But make it all portable.

Posted by dWj | Report as abusive

The big problem is that the governments and unions have been using phony accounting where they use unrealistic return numbers and don’t even adequately fund the pension plans even using those numbers. They also don’t account for retiree healthcare costs.

If realistic accounting of these items were done during negotiations, we would see much more realistic benefit promises and there wouldn’t be these problems today.

The primary benefit of defined contribution plans is that the money is yours when you leave your job. One of the problems with the public sector is that you can’t get rid of workers that you don’t need and they won’t leave, even if they are just counting paper clips, because so much of their compensation is deferred until retirement.

Defined contribution plans with disciplined saving and reasonable employer contributions can provide a lot of security since, regardless of what happens to your job or your employer, you will still have that money.

Posted by ErnieD | Report as abusive

Well put, Ernie. The fundamental problem when dealing with known liars is that you can’t trust them to keep their promises. The politicians managing these pensions (and voting for additional wealth transfers to the Baby Boomers) are known liars. They also promise fine things to the next generation (have to do THAT or they would have open revolt on their hands), but we all know those promises will not be kept. Can’t be kept. The voting public won’t stand for it.

Posted by TFF | Report as abusive

the uneducated public is complaining about a system that that rewards the average teacher/cop/fireman with a retirement benifit worth approximatly 1,000,000 net present value. That exceeds

Assumptions: 70k final sallary, 80% income replacement, 55 year retirement age. Replacement immediate annuity cost = $911,100

All of those assumptions are very close to reality in my state (Maine.) If you boost the 55 retirement age to 62 the cost drops to a slightly more reasonable $785,266.

When you factor in the post retirement health benifits and inflation ajustment that some states offer these figures are on the low end. While the pale in comparison to what a bank president gets they dramaticly exceed the retirement benifits of the average taxpayer.

Posted by y2kurtus | Report as abusive

@TFF – I know that Massachusetts public sector employees don’t contribute to Social Security because they have their own plan, but I believe that’s the exception rather than the rule. Federal civil servants, for example, do contribute to Social Security (a development only about 20 years old), and I certainly did during my time in the Air Force, prior to that. Does anyone have any more general information here?

Posted by Curmudgeon | Report as abusive

y2kurtus, while the retirement percentage varies with age, there are no Massachusetts teachers retiring with an 80% pension at the age of 55. Even a teacher who begins young and works without a break will generally be ~60 by the time they accumulate the necessary 35 years of service for that 80% benefit. And most are a little older than that.

And I look at it very differently. I see a system that charges teachers hired in the last 20 years an annual contribution sufficient to fund a $1M retirement portfolio and **MAYBE** pays the promised benefit in the future (if the politicians don’t bankrupt the system by giving all the money to the Baby Boomers).

Your “average taxpayers”, or at least the politicians they elect, are voting to confiscate $1M PER TEACHER. And you are very obviously reluctant to pay that back.

Tell me again how this is such a great benefit?

Posted by TFF | Report as abusive

To summarize:
(1) The pension benefit, at least in the system for which I have the numbers, could be rephrased as a public guarantee of a strong investment return (Massachusetts assumes 8.25%). That would obviously have value, if the guarantee could be trusted. But there are clear political and fiscal risks to that guarantee. Without that guarantee, the pension is worth little or nothing.

(2) The only portion of the pension benefit to which the employee has clear and uncontested title is the number shown on the annual statement. That consists of the employee contributions plus 2% annual interest. Anything more than that depends on the willingness of the state to honor its obligations. As y2kurtus has clearly stated, there is little or no public support for this.

(3) The voters believe they are not bound by these contracts because “somebody else” signed them. The fact that “somebody else” was a publicly elected official does not concern them. The *ONLY* factor standing between teachers and a sharply reduced pension (likely through delayed retirement) is the insistence of the Massachusetts Supreme Judicial Court that pension obligations are formal debt on par with the state bonds. And laws can be changed.

y2kurtus will enjoy a comfortable retirement because he saves and invests wisely. *I* will enjoy a comfortable retirement because I save and invest wisely. But we should pity those poor fools who hand over $5k-$8k a year of savings to the state to manage. Their contributions are being used to pay benefits to the Baby Boomers (who contributed at a MUCH lower rate). Very little will be left in 30 years when they are ready to retire.

Posted by TFF | Report as abusive

While there is no easy out of the pension mess I do think there are a few things worth trying.

1st now would be a great time to offer what financial planners cynically but accuratly call “idiot buyouts.” Ford bought out tens of thousands of its unfirable union workers for an average of something like $117,000 a peice. That worked out to less than half of the NPV of future pension obligations to those workers but many still took the quick cash and ran.

If you offer all teachers with 10 years senority a cash payment of half of the net present value of their pensions to walk away in the summer and never come back a few would. Every dollar you hand out doing that eliminates $2 dollars worth of shortfall and so it’s worth doing. An added benifit would be the 5-10% of teachers who left would obviously be ones who’s heart were no longer in the job.

2nd after you’ve got the current system reformed so that public pensions roughly equate a private middle manager retirement, (something close to 80% income replacement at 65.) Than by all means mandate full funding every year. If the pension fund falls below 95% of accrued liability than require the state to issue G.O. bonds to immediatly make up the full difference.

That system would have the state making massive investments when the market was down (buying low) because it’s market drops that make penison fund shortfalls so shocking. States would also be issuing bonds when rates were low (since the Fed always eases rates to cushion the blow of recessions.)

The public penison system could easily be reformed and structured in a way that offeres workers a valuable pension at a reasonable cost to tax payers. What cannot continue is the outcome TFF has described. Changing benifits systems on the fly is theft from workers who put in their prime working years expecting to collect what they were promised.

Posted by y2kurtus | Report as abusive

y2kurtus, to be wholly honest, I don’t trust you not to cook the books.

Teachers ALREADY have the right to quit their jobs. You aren’t granting them anything new. Moreover, for a teacher with 15-20 years, their pension fund balances (equal to their payroll deductions plus 2% interest) are more than half of the actuarial value of their self-funded pensions (calculated at an 8.25% investment yield as the state pension board does). So it sounds to me like your “offer” is even worse than their present options. You “offer” to return **LESS** than the money that they paid into the system. Forget sharing investment returns. You aren’t even offering to return the CONTRIBUTIONS.

Now you’ve (rightly) expressed a fear that the pension fund will be unable to achieve that 8.25% target. Fine. Calculate the actuarial value of the pension based on a 5% compounded return and you’ll get a much higher figure. Offer the teachers 50% of **THAT** sum and you’ll get a few takers. Is that what you intended?

Moreover, you are letting your personal biases (feelings of “moral outrage”?) show in your insistence that teachers who accept this offer not merely leave the pension system but LEAVE TEACHING. Sure, you’ll get a few takers who would rather do something else. But (if your offer is fair) you will also get a few people like myself who can’t imagine doing anything else — but are reluctant to pay for the privilege of staying in the public schools. I still teach, both privately and in private schools. But the outrageous pension system means I could not afford to work in the public schools unless I was willing to shape my life around the pension plan.

“something close to 80% income replacement at 65″

Congratulations! You’ve just described your typical teacher retirement. There aren’t many who retire before the age of 65. Nor are there many private-sector middle managers who are forced to contribute 11% of their salary to that pension plan.

But I generally agree with your proposal. Teachers’ pensions in Massachusetts are self-funding if you assume an 8.25% return. That is the actuarial value of the promised pension. So offer teachers an “early exit”. Return their contributions, plus an 8.25% return on those contributions, and allow them the privilege of leaving the system. They can remain in the public schools, paying into Social Security, but would no longer be part of the pension system. Fair? You wouldn’t repair the deficit with this buyout, but you would prevent it from growing any larger.

Posted by TFF | Report as abusive

A few numbers to add to the discussion, now that I’m at home and have a few moments to dig them out of my files…

Under the system at the time I was hired, a teacher who begins at the age of 25 could retire after 30 years of service (at the age of 55) with a 45% pension. They would not qualify for the maximum 80% pension until the age of 62, after 37 years of teaching.

In 2000, the state legislature voted to adopt an improved benefit for those teachers with 30+ years of accumulated service. Under this system, the above teacher would qualify for an 80% pension at the age of 59, with just 34 years of teaching. This was a substantial increase in the benefit (25%?) because it shortened the accumulation phase by 3-4 years and extended the payout phase by a similar amount. All active teachers were allowed to join. A teacher could retire with the improved benefit the following day and would need only pay 30% of *one* year’s salary (five year’s difference between their contribution rate of 5% and the current contribution rate of 11%).

This clearly was a massive wealth transfer to the older generation of teachers, hired during the Vietnam era, who were on the verge of retirement. It was funded by a “wish and a prayer”. Or, more accurately, it was funded by the contributions of the younger generation. The Legislature knew this would be a costly provision, and voted it in anyways, then subsequently decided that it didn’t feel like paying for it.

Given the present 11% employee contribution rate, a teacher (with a Master’s degree) who begins at $38k and works up to the maximum $65k (roughly the salary scale from my old school), with an additional 3% annual increase for inflation, would contribute a total of $411k over a 35 year career. At 2% interest (what the pension fund credits employees) that increases to $543k. At 5% interest (a pretty conservative target for a pension fund) you get $871k accumulation. At 8.25% interest (what they actually use) you get $1.56M accumulation. Based on that final number, the payout rate would be 9.1% — not an impossible target for a 25-year annuity *if* you base it on an 8.25% investment return.

If returns average just 5%, then the accumulation is only 56% of that sum *and* the payout rate would need to be much lower. That is the danger.

Still, your best bet is to offer to buy out teachers based on the 8.25% target that was used originally to calculate the benefit.

Posted by TFF | Report as abusive

If you think Baker’s assumptions are reasonable, what discount rate did he use to calculate the accrued liability?

Posted by TinyOne | Report as abusive

The movement to 401k plans is based on believing that retirement benefits should actually be tied to the economic performance of investments, not tied to giveaways for unions from politicians lining their pockets with political contributions from those unions.

The sense of entitlement of some of the union workers, that the state owes them a livelihood, is simply an embarrassment. They have no toughness.

Posted by TinyOne | Report as abusive

TinyOne, I personally believe that defined pension plans should be ended immediately. No new enrollment. They are bad for both the employees and the employers, a lose-lose situation.

But they represent a legal obligation to those currently enrolled. At the very least, those contributors are owed the actuarial value of their present status in the plan. For those with 20+ years in the system, you can’t reasonably kick them out. For those with less, you’re going to owe them a hefty buyout (e.g. 8.5% annual return on their personal contributions to the plan).

The state OWES exactly what it has promised to pay. Go ahead and change the rules in negotiating the next contract. PLEASE change the rules. But you surely are not willing to set aside centuries of contract law, are you?

Posted by TFF | Report as abusive

“But you surely are not willing to set aside centuries of contract law, are you?”

See GM Senior Secured bondholders roughly 25% recovery vs Union benifits trust (junior to the bondholders) roughly 55% recovery.

See Also WaMu secured bonds holders partial recovery vs unsecured depositors (junior) full recovery. Contract law has taken it pretty hard on the chin the last few years. (To be clear I agree that’s bad thing.)

“The state OWES exactly what it has promised to pay.” Here we agree fully TFF. Give the teachers their money god knows most have earned it…. some many times over. Issue billions of dollars of bonds while you still can and buy out the teachers at the rate of return assumed by the plan.

That rate cuts two ways. If I owe you a million dollars at 62 (your claimed 80% income replacement age based on a 70k sallary) than at 61 I owe you 917,500- 1 year of service credit. At 60 I owe you 841,806- 2 years of service credit and so on. I still owe a 47 year old teacher real money but no where near the million bucks I’ll owe them in 13 years.

That’s why pension plans were so easy to tear down in the corporate sector… ERISA entitles employes only to what they actually earned. If you’ve got 20 years in I only owe you half a pension and I owe it to you in 20 years so I can discount it back for 20 years and give you that number to roll into your 401k type plan. Then it’s up to you to contribute 11% of your sallary the next 20 years and earn 8.25% on all of it like clockwork until you hit retirement age.

I’d like to live in a world where great teachers made 100k decent teachers made 50k and crappy teachers were fired for non-performance…

Posted by y2kurtus | Report as abusive

“Teachers ALREADY have the right to quit their jobs. You aren’t granting them anything new.” the article below is from my local paper. What they are being offered (an 41 out of 200 took it) is a cash payment to leave. That’s new. The payment has no direct impact on their pension other than obviously takes out their last years of service accrual they can keep the money in the plan and get the plans assumed rate of return.

http://www.pressherald.com/news/maine-Po rtland-schools-retirement-incentive-dead line.html

The towns love it because they can retain the younger cheaper teachers earning 40k and lose the older more expierenced teachers earning 55-65k. In the current system those older teachers cannot be fired unless charged with a felony. Paying them to retire early saves the towns money in year one.

As a parent of 2 I hate the idea of turning teaching into an annual bidding to find the low cost providers… that is a road to socital ruin…

At the same time if someone would rather accept 20k to not teach than 65k to teach… I’ll take my chances and place the fate of my childrens future into the hands of the untested 25 year old right of of grad school.

The only moral outrage I have is when I see people who know they are accountable to no one act that way. From everything you’ve ever posted TFF I know that you are as against that kind of system as I am.

Best hopes for more funding rather than less in public education and also for better management of those dollars.

Posted by y2kurtus | Report as abusive

Exactly, y2kurtus. You could make a case that a teacher hired under a pension plan is entitled to that pension plan until they voluntarily retire, but that would be a pretty weak case. And as you point out, the high assumed return means that the obligation is dramatically diminished for a teacher who is ten years away from retirement.

My buyout plan would offer two alternatives:
(1) Accumulated contributions compounded at an 8.25% rate.
–or–
(2) A pension at retirement as promised (a percentage of the three highest years, based on the age at retirement) but with no further accumulation of “creditable service”.

The former would be more than fair for anybody with less than 20 years in the system, while the latter would mean that teachers in their 50s and 60s (of which there aren’t many right now) aren’t losing too much.

“I’d like to live in a world where great teachers made 100k decent teachers made 50k and crappy teachers were fired for non-performance…”

I worked in a district where both great and decent teachers made $50k (or less, since most of the department was young) and crappy teachers were fired for non-performance. The schools aren’t truly as much of a disaster as people pretend — for the most part they reflect the traits of the community they serve.

Posted by TFF | Report as abusive

Yes, that kind of buyout can be a win-win for everybody involved. The schools save enough on ONE year of salary for the veteran to pay for the buyout. And typically the buyouts I’ve seen are structured in a way that they credit towards the “final three years salary” calculation for the pension. The teacher accepting the buyout typically settles for less than an 80% pension, but if you are 60 years old and your health is failing, a 50% pension sounds a whole lot better than dying on the job (as a 65 year old Fitchburg teacher did after breaking up a fight).

I’ve worked with teachers who accepted a buyout. A new teacher always struggles a bit the first year on the job, but their students are STILL better off than with an embittered veteran who is simply hanging on for the pension (and calling in sick a dozen times a year). And by the second or third year, a good young teacher will be doing pretty well.

There is value to having some veterans around the department (we hired a couple for balance when all of the originals were retiring en masse), but teaching effectiveness doesn’t substantially improve beyond the fifth year on the job. After that point it is simply a question of how much energy the teacher has to give her students.

I have mixed feelings about public education these days. It isn’t nearly as bad as people seem to believe, at least not in the suburbs, but without public support it struggles to survive. Unions can negotiate salaries and benefits — but they can’t negotiate other critical factors such as staffing levels or supply budgets (ever try feeding newsprint through a copier because the school ran out of white paper in the middle of May?). It would be hilarious if it weren’t so sad.

Posted by TFF | Report as abusive
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