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November 02, 2009
How well do existing pension plans serve charter and urban teachers? The unsurprising answer: not well. At all. Economist Cory Koedel and his colleagues study teacher-pension plans in Missouri, which has three teacher pension plans—Kansas City Public Schools (which covers 3 percent of Missouri teachers), the Public School Retirement System for the City of St. Louis (which covers 4 percent), and the state (which covers the remaining 93 percent). Since there is no reciprocity between the three systems, teachers lose employer contributions if they switch from one to another. Here are three key findings: First, these programs are costly and getting costlier. The employer-contribution rate to fund pension benefits is 8 percent in the KCPS, 14.5 percent in the state system, and 16.5 percent in St Louis. Second, all three are back-loaded, which creates penalties for mobile teachers who leave before they reach their peak pension wealth. For example, they estimate that the likelihood of a teacher in KC staying until she reaches her peak wealth is just 3 percent. So while everyone is contributing to some degree, the benefits are highly concentrated among few teachers in KC. By comparison, 40 percent in the state system are estimated to reach peak pension wealth. Third, the plans are poorly suited for both charter and traditional teachers, especially in urban areas. In the state system, roughly 70 percent of teachers remained on the job after eight years (2005–2012), yet that percentage ranges from 10 to 30 percent in the urban areas of St Louis and Kansas City. Further, in KC, just one in ten charter teachers still taught there after eight years. (All three pension programs require five years to vest, so you’ve got lots of pension losers here.) They conclude with several common-sense recommendations—among them a call for much more transparency in how these plans work, including providing teachers with reports that compare contributions to returns for teachers with various tenures.
SOURCE: Cory Koedel, Shawn Ni, Michael Podgursky, and P. Brett Xiang, Missouri Charter Schools and Teacher Pension Plans: How Well Do Existing Pension Plans Serve Charter and Urban Teachers? (Kansas City, MO: Ewing Marion Kauffman Foundation, February 2014).