Saturday, September 21, 2013

Teacher pensions offer the wrong incentives

Public school teacher pensions are too generous, pushing overall compensation above fair market levels. But teacher pensions have structural issues as well. Rather than steadily accruing each year teachers work, future pension benefits will "spike" in mid-career, and then actually go down if veteran teachers continue to work.

Pensions effectively incentivize teachers to "hang on" mid-career even if they would otherwise prefer to leave the profession. At the same time, veteran teachers can feel pushed out of their jobs even if they love what they do. I spoke about this problem in an interview with Choice Media TV:


In contrast to the defined benefit (DB) pensions teachers currently receive, a 401k-style defined contribution (DC) plan would offer steady accrual of retirement benefits, leaving teachers' retirement decisions unaffected. Switching from DB to DC plans is one of five recommendations in my "A Better Way to Pay" backgrounder on teacher compensation.

Update: The embedded video uses Flash and so isn't viewable on iOS. Apple users can watch the video here.

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