Of course, the answer is obvious if you know anything about how educator pensions work in Missouri.

Missouri’s teacher pension system creates strong incentives for educators to retire as soon as they hit their pension’s peak benefit. This doesn’t mean they’re ready to stop working; it just means that staying on the job in Missouri would financially penalize them compared to retiring and working elsewhere. This system is problematic because it pushes experienced teachers, principals, and superintendents out of Missouri’s schools when they still have a great deal to offer.

When Missouri educators retire early, they take with them years of expertise and leadership. Instead of keeping our best and most experienced educators in Missouri classrooms, our pension system encourages them to leave for neighboring states. This harms our schools and weakens the overall quality of education available to Missouri students.

To fix this, we need pension reform. We should develop a retirement system that rewards long-term service without forcing educators into an artificial retirement timeline. Instead of a system that penalizes continued work, we should create one that allows educators to gradually phase into retirement, perhaps by working part-time or taking on mentorship roles while still accruing meaningful benefits.

Other states, such as Washington, have reformed their pension systems to better retain educators. Missouri should do the same. We cannot afford to keep losing our best teachers and leaders simply because our pension system makes it financially advantageous for them to retire and work elsewhere.

It’s time to change the incentives. Let’s keep our educators in Missouri, where they belong.

The post Missouri Pension System Pushes Out Another Great Educator appeared first on Show-Me Institute.

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If only someone had warned them about this years ago. Oh, that’s right . . . we did.

The topic of public-employee pension reform has long been important to Show-Me Institute writers. Back in 2013, for example, Andrew Biggs wrote Public Employee Pensions in Missouri: A Looming Crisis. The report did not specifically analyze St. Louis’s teacher pension fund, but the point about the pending crisis applied nonetheless.

When we call attention to impending problems, we are often called alarmists. I have twice had teacher groups circulate action alerts warning members not to respond to my requests for information regarding pensions. It was so bad we actually recorded a podcast telling people we were not trying to take away their pensions. The pushback we received led me to ask, “can we have meaningful dialogue on pension reform?”

So—what changed?

Now, it is the educators themselves raising the alarm. In the KSDK report, Byron Clemens, with the American Federation of Teachers in St. Louis, and his brother, state representative Doug Clemens (D-72nd District), are both quoted on the matter. They highlight how the underfunding of pension systems is harming retirees.

Unfortunately, the Clemens brothers do not call for significant pension reform. They see the symptoms of the problem, but rather than address the structural issues that got us to this point they seem to argue for policies that would only treat the symptoms.

St. Louis’s pension system is underfunded because of the program’s design. Missouri needs to explore new options, such as defined-contribution and hybrid plans, to provide retirees a safe and secure retirement.

The post Rising Concerns about St. Louis’s Teacher Pension Fund appeared first on Show-Me Institute.

The problem is that allowing retired teachers to come back to the classroom does nothing to address the problem. Let me be clear on what I mean by “the problem.” I am not talking about the problem of teacher recruitment and the number of people entering the profession. I’m talking about the teacher pipeline problem caused by the retirement system itself. It is a system that pushes people out. It incentivizes teachers, principals, and superintendents to retire in their mid-50s. This new provision does not address that issue; instead, it makes it worse.

Researchers have long known that defined-benefit pensions, such as those used in the Missouri teaching profession, have two key effects on the labor market. They provide a pull for workers to stay until the peak benefit period, then they push workers out. If a teacher begins working in Missouri right out of college around the age of 22, they will likely hit their peak benefit period around the age of 53.

If lawmakers truly want to keep great late-career teachers in the profession, they should revise the system that pushes them out in the first place. The best way to do this would be to move to a new type of pension system where teachers’ retirement plans would continue to accrue wealth as they continue to work through their 50s.

If we view Senate Bill 75 as a temporary fix (it does have a sunset built in) to address an immediate issue of teacher shortages, then the bill is fine. It is not, however, a fix to a teacher pension system that pushes out individuals who have so much more to give.

The post A Bandage Approach: Teaching after Retirement appeared first on Show-Me Institute.

If I offered you $100,000 a year for the rest of your life to retire from your current job, would you take me up on the offer? What if I said you could have the money and also get a different job if you wanted? If you would answer yes to these questions, you have gone a long way toward understanding why turnover is high among public school superintendents. We financially incentivize them to “retire.”

Take a look at the recent article from Springfield News-Leader’s Claudette Riley, in which she discussed the problem of superintendent turnover. Nearly every person cited in the report was a superintendent who has retired and is working another job. Doug Hayter retired as superintendent of Branson Public Schools; he now draws his retirement benefit and serves as the executive director of the Missouri Association of School Administrators (MASA). Kelly Hinshaw and John Jungman, also quoted in the report, are retired administrators who now work for MASA.

Given the rules of our current state pension system, it makes financial sense to do just as these folks have done. Consider some of the other retiring superintendents listed in Riley’s report. Shawn Randles is retiring from the Logan-Rogersville School District. After a 31-year career, he’s eligible to draw 75 percent of his final average salary of $152,002 for the rest of his life. Depending on the payout he chooses, this could be as much as $114,000 a year. According to Riley, Randles “plans to start a second career in an education-related field.”

Chris Ford, Fordland’s “retiring” superintendent is in a similar position. He’s eligible to draw $108,000 a year for the rest of his life while continuing to work. He has taken a position at Evangel University.

We are told turnover among superintendents is high because the job is stressful. It is curious then that many retire and take up similar positions in other states. Take Crane’s retiring superintendent, Chris Johnson, who has accepted the superintendent post in Prairie View, Kansas.

Stress may be a factor, but the truth is that superintendent turnover is high because our state’s pension system makes it financially beneficial for our veteran administrators to leave. They can earn more by retiring than they could if they kept working.

As Riley’s piece explained, superintendents are eligible to retire after 30 years of service in the profession or after their years of service plus their age equal 80. This means that someone who starts teaching right out of college could be eligible for retirement by their mid-50s. These individuals can then draw their pension and take on new roles, as long as those roles are not covered by Missouri’s Public School Retirement System.

We should applaud efforts to mentor and train superintendents, but if we truly want to reduce turnover the solution is clear—we must change our retirement system. This does not have to mean abandoning the current defined-benefit pension system, though offering a defined-contribution option is something that should be considered. The solution could be as simple as allowing superintendents to draw early disbursements from their pension fund while retaining their current jobs. This would diminish the financial pull to retire and take up a new job in another state or outside of PSRS.

As long as we continue to make it financially lucrative to retire, we will continue to see our best educational administrators retire shortly after they hit year 30.

The post To Reduce Superintendent Turnover, Change the Pension System appeared first on Show-Me Institute.

Daniel DiSalvo is a senior fellow at the Manhattan Institute and a professor of political science in the Colin Powell School at the City College of New York–CUNY.

Read Big City Pensions and the Urban Doom Loop here.

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This isn’t that complicated. The new St. Louis city fireman’s pension board was created because the old one was dominated by union interests who made it incredibly generous for firemen and civilian employees of the department. One of those civilian employees received a half-million-dollar (!!!) cash payout upon her retirement, on top of her generous pension. As this recent Post-Dispatch story explains, the union trustees on the new board have implemented draconian changes to the pension funds, things such as cancelling the annual pension board training trip to Key West. Cue the outrage; from the Post story:

Paul Payne, the city’s budget director, said going to an industry conference in South Florida looked less like education than vacation. And he told Kenny Mitchell, a firefighter trustee who wanted to go, just that.

Meeting minutes relay what happened next: “Trustee Mitchell responded to Trustee Payne with a profane remark.”

I’ve been to Key West many times. It is uniquely wonderful for many things. Pension board training is not one of them.

The St. Louis Board of Aldermen just passed, once again, a bill to return the pension plan to the control of the fireman’s union instead of the new city board that runs it for the benefit of both firemen and taxpayers. That means having a pension system that pays fireman what they deserve, but also considers the interests of the taxpayers at the same time. It doesn’t mean pension training trip to Key West, nor does it mean half-million-dollar cash payouts on top of the pensions. What does St. Louis City’s budget director think it means?

The [proposed] move will consolidate pension oversight under a firefighter-run board that spent double what a city-run panel paid for administration last year. And Budget Director Paul Payne says it would be a first step toward taking the pension system back to where it was a decade ago, when years of rubber-stamping benefit increases led to a budget crisis and forced painful cuts.

“Their history,” Payne said of the firefighters, “is not one of saving money.”

Mayor Jones has vetoed the legislation, just as Mayor Krewson vetoed it previously, and as Mayor Slay would likely recommend after having spent considerable time, effort, and political capital during his term making these necessary reforms in the first place. Good for Mayor Jones. Pension funds should be run for the benefit of those government employees promised good benefits in accordance with the overall fiscal health of the city and its taxpayers, not just one of them.

The post Taxpayers Getting Burned appeared first on Show-Me Institute.

When you write an op-ed, you are often constrained by word count. Newspapers have limited space and often like guest editorials under 600 or 700 words. This means I couldn’t say all the things I wanted to say. In my op-ed, I focused on critical thinking and media literacy. Here, I would like to talk about civility and meaningful dialogue.

I have been writing for the Show-Me Institute for nearly a decade. I began writing about pensions early on. In all that time, I have been invited to debate or discuss ideas with Missouri’s educators exactly zero times. Instead, educators and the leadership of their organizations have attempted to shut down debate. They do this overtly, as in when they send out legislative alerts or emails from superintendents warning teachers to not take my survey, and they do this covertly with the language they use.

Instead of having a debate on the issues of pension reform or even school choice, they suggest I and the Show-Me Institute are enemies who want to “dismantle” the pension system and that we are “privatizers” who want to destroy public education. It’s smart really if the goal is to stifle debate. When you set someone up as your enemy who is out to destroy you, you have little incentive to engage them in a meaningful dialogue.

Dismissing our rivals by name calling and refusing to engage, however, is terrible if you believe the best way to the truth is by discussing and debating ideas.

Like it or not, there are some important policy discussions that we should wrestle with when it comes to Missouri’s teacher pension systems. What should we do about the three separate systems that place St. Louis and Kansas City at a competitive disadvantage? Should we be concerned about the large unfunded liabilities of these systems? Should we care that the systems are designed in a way that favors wealthy school districts and increases inequity?

We cannot have those conversations when one side simply wants to shut down the discussion.

I believe we should engage with the best arguments of our opponents. And I am more than willing to engage with any group of educators who would like to seriously discuss these issues.

The post Can We Have Meaningful Dialogue on Pension Reform? appeared first on Show-Me Institute.

Less funny are the continuing efforts by the St. Louis City fireman’s union to return to the extremely generous and biased-against-taxpayers pension system of the past. After years of political fighting, the Slay administration successfully revised the fireman’s pension system in 2012. The new plan put control of the fireman’s pension under a board of city appointees— under the old system, the pension was run by the fire department and the union itself. What was wrong with the old system? Well, nobody was watching out for the taxpayer’s interests, and they are the ones who paid for everything.

Ever since those changes were made, the union has been “never stopping” in its efforts to get the old system back. How generous was the old system? Well, the former director of the fireman’s pension system, Vicky Grass (who was subsequently elected to the board of aldermen), received a cash payout of $579,000 when she retired in 2015, on top of her monthly $4,870 monthly pension. That’s $579,000 in taxpayer dollars! What did Ms. Grass think of the changes to the new system?

“The new system is not as good as the one we had,” Grass said.

Well, I would think not if you were enjoying the benefits of the old system.

But the city and taxpayers are not being exploited by the union now, and firemen are still receiving the fair benefits and pension that we all agree they deserve. How much money has city government been able to save with the pension reform? This article from 2015 documents the savings the city experienced shortly after making the pension changes:

The city pays when there is a shortfall. In 2013, the city pumped $20 million into the system. Pension reforms have since reduced the city’s liability. Paul Payne, the city’s budget director, said the city paid $1 million into the system in 2015. And it’s not expected to pay anything in 2016.

Mayor Krewson vetoed the attempt last year to change the pension system back to the old system, and hopefully Mayor Jones will do the same if it comes to that. Honestly, it should not come to that at all, but this is a classic example of a special interest group carrying outsized influence with elected officials—in this case, members of the board of aldermen the union helped put into office in the first place. Controlling pension costs for public employee unions is a key responsibility of local government. The City of St. Louis deserves credit for the reforms it made, and those reforms need to be kept in place.

The post The Fireman’s Union Never Stops Never Stopping appeared first on Show-Me Institute.

In the 2021–22 school year, 39 percent (yes 3-9 percent) of education dollars will be spent on pensions. While education spending has grown 17 percent since 2000, teacher and administrator pension costs have risen 458 percent. 458 percent!

When the pension part of the state spending pie grows, the other slices of the pie shrink. That means that money that could be going to today’s teachers is going to yesterday’s.

Pensions are a perfect storm for governmental jiggery-pokery. The bill for bad decisions doesn’t come due for years after most of the people making decisions are out of office. The benefits are clear to those receiving them but are opaque to taxpayers (who tend to focus on metrics like teacher salaries, not total teacher compensation). Legislators can hide behind actuarial alchemy to obfuscate the magnitude of their decisions. Everyone wants teachers to have a safe and solid retirement, so quibbling with how much is spent can come off as teacher bashing.

Thankfully, Missouri is not nearly in the dire straits that Illinois is. Now, Missouri pensions are unfair. They invest in riskier assets to chase higher returns when they are underperforming. And, they are a bad deal for most teachers. But Illinois still serves as a cautionary tale for us.

And ballooning pension costs are bad for everyone (except, to be fair, those who are receiving them). It is bad for current teachers and students, who miss out on funding that could be used to support them. It is bad for current legislators, who have less money to spend on higher education, healthcare, roads and bridges, and more. And it is bad for future teachers, students, and legislators, who will be hemmed in by the decisions that their forebears made.

The great political philosopher Edmund Burke argued that the social contract is “a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Irresponsible pension policy violates that social contract and should be roundly criticized. Well done to the good folks at Illinois Policy for doing so.

The post Why We Need to Take Pension Costs Seriously appeared first on Show-Me Institute.

In a recent article in the journal Perspectives on Politics, Sarah Anzia and Terry Moe examine whether pension plans that have pension beneficiaries serving on the board are more likely to underfund their pension systems. In the paper, they explain the logic behind underfunded pensions:

Another basic feature of pension politics is that public workers and their unions have incentives to support the chronic underfunding of their own pensions. Due to state statutes, constitutions, and judicial decisions, pensions promised by state politicians are backed by strong legal protections almost everywhere; and public workers thus know they will eventually get what they are promised even if their pension plans are currently underfunded. Indeed, because full funding on a regular schedule would be tremendously costly for state (and local) budgets— crowding out other services, forcing higher taxes, making the true costs of pensions painfully transparent to citizens —public workers and their unions have incentives to prefer that their pension plans be underfunded. Underfunding enables the fiscal illusion that pension benefits are much less expensive than they really are. If public workers and their unions want increasingly generous benefits in future years, they need to convince the public that these benefits are not costly to provide. At the same time, underfunding keeps employee contributions to their own pension funds at low levels; and by keeping contributions by their employers down, they are freeing up public money for other government services, keeping public workers employed—and providing funds for their own salaries and raises.

Each of Missouri’s three teacher pension systems (Kansas City, St. Louis, and Public School & Education Employee Retirement Systems of Missouri (PSRS)) have board members who are also members of the pension system. In St. Louis, the system is currently funded at 78.1%, the lowest funded ratio since 1992. Kansas City’s funded ratio is just 66.2%. PSRS, the system which covers teachers throughout the rest of the state, has the highest-funded ratio, 84.4%. These figures, of course, rely on the pension plan’s rosy assumptions. More conservative (and arguably more realistic) estimates put the funded ratios for each of the plans below 60%.

Overall, support among teachers for Missouri’s teacher pension systems is high. But would teachers continue to support the pension plan if they had to increase their contributions to fully fund their plan? 

The post Why Are Public Pensions Often Underfunded? appeared first on Show-Me Institute.

Advocates for Missouri’s current defined-benefit pension system argue that this type of system, where teachers are promised a generous and guaranteed pension once they retire, is needed because it increases teacher retention. Yet, there is little evidence that this type of system is a cost-effective method for increasing teacher retention. Rather, the example of these superintendents demonstrates how the system pushes out high-quality individuals. It does the same for teachers (teachers and superintendents are in the same pension system). When teachers hit 30 or 31 years, regardless of their quality or their desire to continue teaching, the financial incentive of the pension pushes them out.

Recently, Gov. Parson asked school superintendents to come up with a plan to increase teacher pay. One solution, which I have little hope will ever be recommended by the superintendents, is to change how we compensate teachers. A pension is basically a form of delayed compensation. We require teachers and their districts to contribute 14.5% of their salary to the pension system (the numbers are different in St. Louis City and Kanas City). That’s 29% of a teacher’s salary that is going into a pool that they may have access to if they make it to retirement.

We could give teachers in Missouri a 10% raise next year, with minimal cost to the state, if we just change this system.

Currently, teachers in the Public School Retirement System (PSRS) do not contribute to Social Security. The pension system is their only required retirement savings. In this proposed scenario, the teacher would receive a 10 percent raise on his or her salary. The teacher would begin contributing to Social Security (6.2 percent from the individual and the employer) and would be eligible for Social Security benefits. Additionally, the teacher and his or her employer could contribute a combined 5 percent of salary to a defined-contribution retirement account, such as a 401k or a cash balance plan. Of course, with a smaller raise the teacher could contribute more to retirement. 

There are numerous benefits to this proposal. First, teachers would own their retirement accounts. They would not lose any money if for some reason they do not vest at five years. They could also continue to work past 31 years and their accounts would not lose value. Teachers could also choose to invest more in their account, as many do now in 403b accounts.

The biggest benefit is that teachers would have higher salaries today. If we want to keep our best teachers and superintendents, higher salaries are a much more effective tool than outdated pension systems.

The post We Could Give Teachers a Ten Percent Raise Next Year appeared first on Show-Me Institute.

Not so in the public sector, where 84 percent of employees can still expect to retire at a relatively early age (55 or so) and get a paycheck (and possibly health insurance) until they die. A bill to allow Missouri public school teachers to decide for themselves whether they wanted a traditional pension or a 401(k) type retirement benefit was filed in Jefferson City last week and immediately attacked by both the Missouri State Teachers Association (the teachers union) and the Missouri Retired Teachers Association.

These two associations claim their main mission is advancing the best interests of teachers. But which teachers? It’s estimated that nearly 4 in 10 Missouri teachers won’t get to the five-year vesting requirement to receive any employer benefits. Furthermore, because Missouri’s system is so backloaded that teachers have to stay in the system for 26 years just to break even, only about 38 percent will even hit that point.

So the Missouri teachers union and the retired teachers association are sounding the alarm about “harmful retirement legislation” being filed. But they apparently are not considering the best interests of young teachers who would prefer contributing 5 percent of their salary towards retirement instead of nearly 15 percent. They apparently are not considering anyone who leaves before vesting and would like to take with them what their employer has been contributing on their behalf for 3 or 4 years. And they apparently are not considering teachers who leave before their breakeven point and end up getting less in retirement than what they contributed.

Defined benefit pension plans are expensive, unsustainable, and antiquated. Yes, they work great for teachers who hit the “Rule of 80”—years of work, plus age (retire at 53 with 27 years of service). What are the chances that our best and brightest college graduates see that as their future? Shouldn’t we at least give them some options? Shouldn’t we let them have some control over their careers and earnings?

The post Support for Teachers? Or Just Some Teachers? appeared first on Show-Me Institute.

Learn more about pension reform at showmeinstitute.org

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The post Public Employee Pensions in Missouri: A Looming Crisis appeared first on Show-Me Institute.

Missouri’s largest teacher pension fund, the Public School Retirement System (PSRS), has already begun to recognize the improved mortality rates of teachers. A PSRS report on contribution rates for 2017-2018 notes that the system has already begun updating the plan’s mortality assumptions:

People are living longer. Mortality is improving, not just in Missouri, but also across the nation. As a result, actuaries are utilizing updated mortality tables, which reflect this trend. PSRS/PEERS conducted Actuarial Experience Studies to compare our actuarial assumptions to the actual experience of the Systems. In other words, are members living as long as we assumed they would, or are they actually living longer?

According to the internal PSRS analysis, people are living longer than the plan had assumed. Adjusting for greater longevity led to a tremendous increase in the plan’s liabilities. According to PSRS board chairman Aaron Zalis, “the revised mortality assumptions better reflect PSRS/PEERS’ actual experience, which results in an increase of over $2.1 billion in liabilities to the Systems.”

Teachers in PSRS are eligible to retire with full benefits after 30 years of service, and there are also early retirement options. This means a teacher may retire by 55 with 30 years of service. Given the new mortality tables from the SOA, a large subset of teachers might be expected to live beyond 90 years old, drawing a pension for 35 years or more.

It is unclear if the SOA’s updated mortality tables for teachers will encourage PSRS or Missouri’s other two pension plans to once again change their assumptions. If they do, we can assume the financial health of the plans will decline.

Let’s process what that means for a second. Some teachers in the past did not put enough into the retirement system to cover their own benefits. As a result, the pension plan will become increasingly underfunded. To make up for this, the plan will have to increase contributions for new members, hold down retirement benefits for retirees, or seek higher returns on investments (Read: “risky investments”). None of this is good for teachers of today or tomorrow.

So teachers, keep this in mind when you sign that contract. You are agreeing to fund the benefits of those who went before you. You may be striking a bargain that you end up regretting.

The post Teachers Live Forever appeared first on Show-Me Institute.

The St. Louis Public School Retirement System (STLPSRS) has its own problems—it was just 64 percent funded in 2016, with 5,000 current teachers supporting 4,600 retirees. Teachers have been contributing 5 percent of payroll, with St. Louis Public Schools (SLPS) and charter schools making up the rest of what the annual actuarial analysis determines is necessary to keep it funded at least 70 percent. As a result, the bill for SLPS and the charter schools has climbed to over 15 percent and, in 2018, the actuarial analysis determined it needed to be 19 percent. However, difficulty keeping up with increasing costs led SLPS to request that the Missouri state legislature cap their contribution rate at 16 percent. In addition, teacher contributions would climb by one-half percent each year until they reach 9 percent (new teachers in fall 2018 will immediately begin paying 9 percent). According to STLPSRS, that would leave them with a $192 million shortfall within 15 years, so they’re suing SPLS and the St. Louis charter schools.

Economic conditions, unaffordable benefit promises, and an unwillingness to use realistic investment return assumptions have resulted in precarious fund positions, lawsuits, and attempts to balance the books on the back of the youngest workers. Does it have to be this way? No. Many states are moving away from defined-benefit plans (pensions) and toward defined-contribution plans [like 401(k), cash-balance, or hybrid plans]. In some cases, all new employees are placed in the new plans; in others, they can choose between the state defined-benefit plan or the new options.

We’re also seeing teacher retirement benefit innovation from within public education. In 19 states, charter schools may choose whether or not to participate in their states’ pension plans. A recent analysis of charter school participation in five states that make participation optional found that the schools most likely to opt out of the state plan are urban, elementary schools, and those that are managed by charter networks. Most of the opt-out charter schools offer their teachers 401(k) or 403(b) plans, and the teachers are vested in less than one year. The reasons given for choosing this path were mostly that the schools wanted to lower their estimated costs, give teachers a wider range of investment options, and make their teacher benefits more portable. For today’s youngest teachers, this is an important point. Most of them will not meet a vesting period of ten years in one state and, when that happens, they lose the amount that their employer contributed for them.

The good news for teachers and taxpayers is that there is time to protect current and future retirees before the system is bankrupt. The building isn’t on fire yet. However, those of us who pay close attention to this complicated topic are starting to see smoke under the door. It’s time to start talking about how to stabilize Missouri’s teacher pension systems.

The post A Retirement House of Cards appeared first on Show-Me Institute.

Consider the costs to taxpayers. As of 2018, the plan has assets equal to less than 70 percent of their liabilities and—just to maintain that level of funding—the Missouri state government will have to contribute nearly 20 percent of its total employee payroll to the plan this year. In addition, employees hired after 2011 contribute 4 percent of their paychecks to the system. Imagine a private-sector benefit that cost nearly one-quarter of employee salaries but was considered so sacrosanct as so be untouchable. The hard truth is that we’re going to have to start talking about policy changes aimed at averting a funding crisis. Biggs’s essay explores various options, including grandfathering current plan participants and designing a new system for future employees.

Of course, MOSERS is just one of many public pension plans in the state. The pension systems for teachers aren’t any better.  Teachers argue that they work for low salaries and, in exchange for their sacrifice, they are “taken care of” with generous retirement benefits. But that is only true for those teachers who start their teaching career right out of college and work in the same state for at least twenty-five years. In fact, an analysis of the Missouri Public Schools Retirement System (PSRS)—the plan that covers all Missouri teachers other than those in Kansas City or St. Louis—found that a teacher in the Springfield district would have to work for 26 years in order to hit the “crossover” point at which their total retirement benefit is worth more than what they contributed.

Imagine that! Working for 26 years before your retirement plan is worth more than you put in.

While the PSRS is in better financial health than MOSERS, total annual contributions to the plan are 29 percent of payroll (with 14.5 percent coming from the teacher and 14.5 percent from the school district). This is only likely to get higher because there are now 78,000 teachers (active members) supporting 60,000 retired teachers. In 2000, roughly the same number of active teachers supported just 25,000 retirees. In addition, while the plan is currently nearly 84 percent funded, it has an unfunded liability of more than $7 billion and its administrators continue to assume that the plan will earn a 7.6 percent return on its investments every year, indefinitely. You don’t have to be a math teacher to know those numbers just don’t add up.

The post Public Employee Pensions: Time to Get Our Heads Out of the Sand appeared first on Show-Me Institute.

According to a 2017 asset/liability analysis commissioned by KCPSRS, the system only has enough money in the bank to pay 64 percent of what it owes to current and future retirees. We’ve written about this problem before, but it’s worth repeating. The fund needs to earn at least 5 percent per year, every year, for the next 20 years, or they’ll be out of money. That’s right—no money left in the fund. (For reference, between 1998 and 2018 the annualized Dow-Jones Industrial Average inflation-adjusted return was 5.528 percent.) Not surprisingly, the KCPSRS has requested increases to the school contribution rate over the next few years from the state legislature. So, Kansas City Public Schools and Kansas City charter schools will have to take another chunk of their revenue out of the classroom to send to KCPSRS.

STLPSRS was also just 64 percent funded (see p. 11) in 2016 and has almost as many retirees as active teachers. An annual analysis by actuaries determines how much SLPS and the St. Louis charter schools have to contribute to the fund each year. However, difficulty keeping up with increasing costs led SLPS to request that the state legislature cap their contribution rate at 16 percent, and they did. Unfortunately, STLPSRS looked at how that cap would affect the fund and determined that it would leave them with a $192 million shortfall within 15 years, so they’re suing SLPS and the St. Louis charter schools.

Economic conditions, unaffordable benefit promises, and an unwillingness to use realistic investment return assumptions have resulted in shaky fund positions, lawsuits, and balancing the books on the back of the youngest workers. What’s worse is that in 2017, the average pension payment took about $1,200 per student out of the classroom.

Does it have to be this way? No. We’re actually seeing teacher retirement benefit innovation from within public education. In 19 states, charter schools may choose to participate in their state’s pension plans or not. A recent analysis of charter school participation in five states found that the schools most likely to opt out of the state plan are urban schools, elementary schools, and those that are managed by charter networks. And new schools in high-cost states like California are much less likely to join than they were just five years ago.

Most of the opt-out charter schools offer their teachers 401k or 403b plans in which the teachers are vested in less than one year. The reasons given for choosing this path include wanting to lower their estimated costs, giving teachers a wider range of investment options, and making their benefits more portable.

For today’s youngest teachers, this is an important point. Most of them will not meet a vesting period of ten years in one state, which means they will lose the amount that their employer contributed for them. Even if they stay, Missouri teachers have to work for 26 years before their contributions are higher than their expected benefit. When you take nearly 10 percent off the top of a teacher’s salary, plus another 6 percent for Social Security, you have to wonder why anyone would want to be a public school teacher in Kansas City or St. Louis.

The post Innovation Brings Hope for Teacher Pensions appeared first on Show-Me Institute.

The words are complicated and confusing. But two years ago, Beau Barnes, a KTRS lawyer, summed it up this way, “It’s a 100 percent certainty that if we don’t do something very soon, this problem continues to get much, much worse very quickly.”

What this means is that, as in so many states, Kentucky’s teacher retirement plan is in a hole that is only getting deeper. It is time to stop digging, and it appears they’re trying to do so. If Governor Bevin signs SB 151, current and retired teachers will be guaranteed pension payments for every dollar that they have been promised, plus an annual cost-of-living adjustment of 1.5 percent. New teachers—only those hired for the 2019–20 school year and thereafter—will be placed in a hybrid, cash balance plan, similar to what just about everyone in the private sector has today. This will allow the state to deal with the debt the plan has accumulated without it growing.

So, why Kentucky teachers are walking out? Are they that concerned about the next year’s crop of new teachers? Or is it just that they don’t really understand the system, the seriousness of the problem, and how reform actually protects their benefits by finding a way out of the financial mess? We found a similar lack of understanding when we surveyed Missouri teachers about pensions. So, while the teacher’s unions are whipping teachers into a frenzy behind the false narrative of “they’re taking our pensions!” Kentucky parents have to scramble to make arrangements for their kids.

A word of caution for St. Louis public school teachers. The financial situation of their retirement fund isn’t much better, and the fight over how much the St. Louis Public School Retirement System (PSRS) needs and how much St. Louis Public Schools (SLPS) is willing to pay is now in the courts.

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