Why Pensions Are Critical for Teachers’ Retirement Security/ A Look at the History of Public Pensions

 

“…According to a study the National Institute on Retirement Security (NIRS) conducted with the University of California Berkeley Labor Center that analyzed teacher pensions across Colorado, Connecticut, Georgia, Kentucky, Missouri, and Texas, pensions offer more retirement security than defined-contribution plans like 401(k)s. The research illustrated that pensions provide a higher and more stable retirement income than a 401(k)-style retirement plan for eight out of 10 educators across these states. [Why not analyze Illinois, New York and Alaska? It is not necessary because they have a State Constitution that provides a legal basis for protection of public pension rights under state laws for past and future accruals].

 

“Pensions also play another critical part in these educators’ retirement plans because, with the exception of some teachers in Georgia and Texas, most of the teachers in these states do not receive Social Security. This makes their pension their sole source of guaranteed income in retirement. 

“The same study also revealed that defined-benefit pensions are a crucial tool in recruiting and retaining qualified public educators. ‘Policymakers should understand that pensions exert a clear retention effect on experienced teachers—lowering teacher turnover, easing schools’ staffing pressures, and contributing to education quality,’ the report states. NIRS also showed that two out of three teachers will serve for at least 20 years in their classrooms throughout these states. And, on average, the typical educator will teach for 25 years within the same state. 

“NIRS’ research illustrates the consequences of converting pensions to defined-contribution accounts for educators. Such a move would threaten teachers’ retirement security and impact state and local governments’ ability to recruit and retain dedicated educators…”

-by Tristan Fitzpatrick, “Why Pensions Are Critical for Teachers’ Retirement Security,” National Public Pensions Coalition

 

“Pensions have played a critical role in retirement security from the earliest days of the republic, going back to the American colonies offering pensions to soldiers who were injured during the Revolutionary War. Today, we’re looking back on the history of public pensions in the United States, and why it matters for the future of retirement security. 

 

Beginnings of Public Pensions  

“One hundred and sixty-four years ago, in 1857, New York City created the first public pension plan in the country. It offered a lump sum payment for the city’s police officers if they were injured while serving the public. In 1878, this plan was changed to provide a pension for police officers who were 55 years old and had served the city for at least 21 years. The city continued to be a pioneer in creating the nation’s first public pension plans 17 years later when the Manhattan borough became the first jurisdiction in the country to offer a pension plan for its public educators. 

 

Progressive Era and the New Deal 

“During the Progressive Era, a period of political reform for workers’ rights in the late 19th and early 20th centuries, policymakers adopted public pensions in more areas of the country. For example, Massachusetts established the first public retirement system for state employees in 1911. North Dakota and California also created public pension plans for educators in 1913, followed by Connecticut and Pennsylvania in 1917, and New Jersey in 1919. 

 

“It wasn’t until President Franklin D. Roosevelt signed the Social Security Act of 1935 into law during the New Deal, however, that local and state governments began offering public pensions en masse for their employees. Under the Social Security Act as it was originally written, local and state government employees were excluded from participating in Social Security due to constitutional concerns over taxation. As a result, public employers started extending pensions to provide a secure retirement to their workers. Between 1935 and 1950, about half of the major state and local government pension plans in the country were created. 

 

“The Social Security Act would eventually be amended after 1950 to allow state and local government employees to participate in both the program and a public pension plan. However, in several states, many public employees still are not eligible for Social Security because of their pension plan not including coverage for it. According to the National Association of State Retirement Administrators (NASRA), most or nearly all of the public employees in [Illinois], Alaska, Colorado, Louisiana, Maine, Massachusetts, Nevada, and Ohio do not participate in Social Security, making their defined-benefit pensions a critical source of income in retirement. 

 

Adoption of the 401(k) in the private sector and the future of retirement security 

“In 1978, Congress passed the Revenue Act, which created defined-contribution accounts like 401(k)s. 401(k)s were originally designed for wealthy individuals to skimp money off of their taxes, but private-sector companies soon realized that they too could shave money off of their bottom line by using these accounts as retirement plans for their employees, instead of providing defined-benefit plans. 

 

“After its introduction, 401(k) use skyrocketed in the private sector. As of 2018, more than 58 million Americans participate in a 401(k). However, they have been a disaster for private-sector workers’ retirement security. 401(k)s were marketed as a way for workers to save money on their own to prepare for retirement, but with a rising cost of living eating away at the value of people’s paychecks, many workers simply aren’t able to adequately save enough to retire. According to Fidelity Investments, the median amount in its 401(k) accounts is just $24,500, which is not nearly enough for a dignified retirement. 

 

“The widespread adoption of 401(k)s in the private sector also gave public pension critics ammunition to attack public workers’ retirement security, despite the evidence that public pensions provide a more secure retirement at a cheaper cost to state and local governments than 401(k)s. For example, in West Virginia, these adversaries lobbied the state legislature to switch newly hired public educators into a 401(k) style defined-contribution system instead of the West Virginia Teachers Retirement System (TRS). The experiment proved to be so disastrous that in 2015 West Virginia re-opened TRS and almost 80 percent of public educators in the state switched back to the defined-benefit plan. 

 

“While public pensions may not be spring chickens anymore, policymakers would be wise to protect them given their long and storied history of preventing our nation’s retired public servants from falling into poverty.”

 

-by Tristan Fitzpatrick, “A Look at the History of Public Pensions,” National Public Pension Coalition