Pension Plans Put Strain On Education Budgets

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COLUMBIA -The cost of retirement plans in the public school system is putting stress on education budgets, according to an economics professor at MU.

Corey Koedel said people do not usually think about pension systems when they worry about schools. "They should understand this is a huge piece of financing schools and if you're worried about education spending, pensions should be high on your list of things to worry about."

The Missouri Public School Retirement System and the Education Employee Retirement System face financial struggles to provide funds for pension packages promised to teachers in the late 1990s, according to state data.

In the private sector, most pension plans were frozen or cut back when the economy fell in the early 2000s.

Missouri statute requires pensions be paid as promised. The fund is $7.2 billion short of the $35.6 billion needed.

"Twenty nine percent of teacher earnings in Missouri go to fund pensions," Koedel said. "By state statute, half of that comes out of teacher paychecks. The other half come from school districts, so when pension liabilities get worse, districts and teachers have to pay more into the system."

The required contribution from teachers has steadily increased, by the maximum allowed 1 percent per year since 2005.

Because pension plans are beginning to disappear in the private sector, Koedel said, the generous teacher pension plans provide an incentive to stay in the school system.

In Missouri, pension plans are calculated through a formula using the number of years a teacher has worked, their highest three years of salary and a benefit multiplier of 2.5 percent.

For example, a school administrator who works from age 25 to 55 and makes $30,000 during their final three years would retire with a plan of $22,500 per year plus inflation.

Teacher advocates say such pensions are an important reward. The National Education Association website says, "Educators do not retire into a life of luxury. They have spent their lives dedicated to public service, often forgoing higher salaries offered in the private sector. They have earned and deserve the modest pensions they were promised."

But, Koedel said the money spent on pensions does nothing to help students. "It just took teachers who were late in their career and literally, from one year to the next, just gave them a huge pile of money and it's hard to argue that helped schools work better at all."

During his research, Koedel said he found that superintendents and administrators reap most of the benefits of the pension plans because they have the highest salaries. He said they typically do no seek pension reductions because of that, even though they could help improve the education system.

Koedel said he was surprised to find no one in leadership positions who were stepping up to warn people about the implications of high pension costs.

In one paper, Koedel writes, "Given the powerful incentives that are in place, there is no reason to expect school administrators or their organizations to support reforms that would provide a more modern and mobile retirement system for young educators, like those found in nearly all other professional employment settings. On the issue of pensions, labor and management are on the same side of the bargaining table."

Stacey Doyle, a librarian in Qulin, said she would not mind if some of her pension money was taken away to provide funds for school security.

"I would like to see money being mandated for security purposes. Our school district can't afford a security officer and I would like to see more money being spent there," Doyle said.

More of Cory Koedel's research:

Who Benefits From Pension Enhancements?
The School Administrator Payoff From Teacher Pensions
Defined Pension Plans and Job Lock: Evidence From The Education Sector

Editor's Note: This story was updated for clarity and to include a quote from the National Education Association.

 

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