As California looks to change the state’s public employees’ pension plan, the Center for American Progress has released reports weighing the outcomes of traditional defined-benefit pension plans for teachers vs. cash-balance plans, says the National Education Policy Center.
The two reports, Redefining Teacher Pensions: Strategically Defined Benefits for New Teachers and Fiscal Sustainability for All by Raegen T. Miller and Buyer Beware: The Risks to Teacher Effectiveness from Changing Retirement Benefits by Christian Weller, have been subject to review by Teresa Ghilarducci for the National Education Policy Center’s Think Twice think tank review project. And Ghilarducci has found that, while they have some limitations, they raise important issues in the face of limited knowledge.
Teachers and employers currently contribute a share of the employee’s salary into an account that earns a defined rate of return in cash balance plans. The plan was proposed by California Governor Jerry Brown for the state’s new teachers.
Under the plan, retiring teachers with 35 years of service would receive 75 percent of their career-average salaries, compared to the current system that means teachers who retire at age 64 with 35 years of service have pensions worth 84 percent of final pay.
And the two Center for American Progress reports agree that that current teachers’ benefits should not be cut and that, if states convert to a cash-balance plan, they should maintain average pension benefits and strive to not cut benefit costs. However, where one concludes that converting to a cash-balance plan might have benefits, the other warning that the approach would likely end up costing more and creating incentives for the exit of peak-performance teachers from the profession.
Buyer Beware warns that converting to cash-balance plans would likely increase teacher turnover, increasing training costs and reducing funds for raises for new teachers.
While Redefining Teacher Pensions argues that traditional plans provide little incentive for younger teachers to remain in the profession during their most productive years.
Ghilarducci notes that there is relatively scant research that currently exists on the questions that the reports raise.
“These two reports are valuable contributions, not so much because of the proposals they set forth but as flags for the complicated and sometimes counter-productive effects of many current proposals.”