12-31-2014 PLEASE SHARE AND LIKE The National Council on Teacher Retirement Supporting Retirement Security for Americas Teachers NCTR FYI New Report Supports Mandatory Social Security Coverage for Teachers A new report from Bellwether Education Partners, released on December 18, 2014, purports to find that public pension plans leave too many teachers with inadequate retirement savings, and argues that Social Security coverage should be extended to all teachers by either state action or Federal mandate. Bellwether is the recipient of a grant of up to $748,000 from the Laura and John Arnold Foundation to “provide information about teachers’ pension systems,” and created “Teacherpensions.org,” a website whose byline is “Fixing an Unfair and Insecure System.” Need we say more? According to Bellwether: over half of new teachers will not qualify for a pension at all, while “only a tiny percentage of teachers last a full career and qualify” for what Bellwether calls a “theoretical, idealized pension”; for new teachers who do qualify, many will receive pensions worth less than their own contributions; state pension plans in states without Social Security coverage are in worse financial shape than pension plans in other states, “leaving uncovered teachers vulnerable to future benefit cuts or increases in their employee contributions”; extending Social Security coverage to all teachers would “eliminate” the Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP); and expanding Social Security coverage to all state and local workers will “help eliminate the existing long-term funding shortfall” for the program. The Bellwether report, entitled Uncovered: Social Security, Retirement Uncertainty, and 1 Million Teachers, also provides examples of three hypothetical Chicago public school teachers, each in two scenarios: without Social Security, and then with Social Security coverage. (They assumed that the three teachers enter the Chicago Public Schools in 2014 at age 25 and that “the current state pension system rules for new entrants apply for every year going forward.”) Under all of the Bellwether scenarios, the teachers are supposed to gain tens if not hundreds of thousands of dollars more if covered by Social Security during their time in the classroom. After the new report’s release, the Teacherpensions.org website blog followed with three postings entitled (1) “Why Aren’t All Teachers Covered By Social Security?” (12/19/2014); (2) “A Brief History of Social Security and Teachers” (12/22/2014); and (3) “Teachers Are Mobile and Need Portable Retirement Benefits” (12/29/2014). According to these blog posts: When states were given the opportunity to extend coverage to public sector workers in the 1950s, a “handful” decided not to do so and instead “bet they could provide better coverage through state pension plans alone than through the combination of a pension and Social Security.” While Bellwether concedes that pension benefits for full-career workers “typically have a higher rate of investment return than Social Security,” it argues that “this arrangement works well only for the small percentage of teachers who stay 30 or more years in a single retirement system.” “While Congress has mandated Social Security coverage for all public sector workers not covered by a retirement plan, this does not affect teachers.” (This will likely come as news to teacher retirement systems that operate under the assumption that the Federal minimum retirement benefit requirement in order to be considered a FICA Replacement Plan does indeed apply to them!) “The most common number of years a teacher has served in the profession has dropped from 15 years in 1988 to five years today.” “Pensions aren’t portable,” and once a teacher moves, “her previous years spent teaching are erased and she starts back at square one with zero years of service on the clock.” While Bellwether acknowledges that a teacher who has prior teaching experience can purchase service credits, “this turns out to be an expensive and pretty bad deal,” Bellwether claims, because—gasp!—“states often charge the full actuarial cost to purchase service years.” Bellwether concludes its report with the assertion that Social Security is not sufficient as a stand-alone benefit, but that “extending coverage to teachers would be a positive step in the right direction.” In response to the Bellwether report, Meredith Williams commented “Where do I begin?” Williams, NCTR’s Executive Director, also said that he thought it was ironic that an organization who viewed the public pension defined benefit (DB) model as “unfair and insecure” was arguing for access to what some would see as the “mother of all DB pension plans.” Williams first criticized the report’s use of hyperbole. “Claiming that only a ‘tiny percentage’ of teachers will obtain a benefit from their retirement plans is simply false,” he said. He referred to Bellwether’s earlier 2014 report entitled Friends without Benefits, which also asserted that unless a teacher had a full, uninterrupted career covered by the same pension plan, then they would receive no retirement benefit from their years as a teacher. “This is just not true,” Williams insisted. In fact, there are many ways in which a retired teacher can receive a benefit from their pension plan without having an uninterrupted career or reaching normal retirement age. As explained in an April 29, 2014, NASRA Members and staff memo in response to Bellwether, these can include receiving a disability benefit; qualifying for a vested deferred benefit; returning to employment with the same employer, thus enabling the returning teacher to re-start accrual of retirement service credit; and benefitting from reciprocity agreements between plans, usually within the same state, for those who terminate and are later employed by a different employer. Williams next turned to the hypothetical examples that Bellwether used to support how Social Security would improve teachers’ retirement benefits, expressing serious concerns that these were apparently based on an unchanged public pension benefit component. However, as he pointed out, “Bellwether itself concedes in its report that pension systems in uncovered states ‘were designed to provide participants with a primary source of retirement income without any additional social insurance benefit in mind’ and that teacher pensions in uncovered states ‘tend to offer more generous pensions’ to compensate for this lack of Social Security.” Consequently, the report notes that existing benefit structures in such states would need to be restructured to work with Social Security. “Nevertheless, it appears to me that in drawing its comparisons, Bellwether assumes no modifications in the teacher pension plan going forward in the example that includes Social Security coverage, which is simply unrealistic, in my opinion,” Williams observed. “By letting it appear that Social Security would be added on top of the benefit currently provided by the existing Illinois teachers’ pension system, which is not now integrated with Social Security,” he continued, “this not only produces what looks like a very dramatic but unlikely net increase in overall benefits in most cases, but it also would require a significant increase in employer and employee contribution rates, which Bellwether also acknowledges would be very problematic.” “Unless I am misunderstanding their methodology, I think this is simply wrong,” he concluded. Williams also questioned other statements in the report and the follow-up blogs. For example, he said that Bellwether is trying to suggest that teaching has become a short-term career by citing five years as the “common” number of years a teacher has served in the profession. Actually, Williams observed, this reflects the fact there are dramatically more beginning teachers in the nation’s classrooms as compared with the past, not that the average teacher’s career has declined dramatically. In fact, the same report that Bellwether cites for its claims also found that in 2007-08, the most “common” teacher was a first year teacher, demonstrating that the recent dramatic increase of new teachers into the workforce has pushed the modal or most common years of experience down. Nevertheless, Williams stressed that Gabriel, Roeder, Smith & Co. (GRS) has determined that the average current service for teachers participating in most statewide retirement systems is in the range of 10 to 15 years. Williams also said that Bellwether was confusing the normal process of attrition in teaching, as well as other external factors such as the economy, as being reflective of a desire by newer teachers for increased mobility. “The fact that during the recent recession, 41 percent of teachers left the classroom within five years does not support the conclusion that the ‘teaching force has become more mobile’ and must have a retirement system that is more portable than the DB model,” Williams said. Rather, he suggested, it reflects the reality that since 2009, more than 300,000 education jobs have been lost, in part, due to budget cuts at the state and local level. It also reflects the fact that in general, many young teachers decide within the first five years in the classroom that teaching is simply not for them. As the Retirement Systems of Alabama has observed, the fact that those departing the profession in the first few years may not qualify for a pension is not some flaw in the plan design but rather it is often the career path chosen by the employee, Williams noted. Finally, Williams pointed out that dangling the hope that Social Security coverage would somehow magically serve as a repeal of the GPO and WEP is misleading. “While these provisions would eventually become unnecessary, the Government Accountability Office (GAO) has made it clear in its previous reports that the GPO and WEP would still be needed for many years to come,” Williams said. “I am very concerned with what seems to me to be a pretty transparent effort by Bellwether to confuse young teachers and lead them to believe that the current public pension model for retirement security is unfair and insecure and needs to be ‘reformed’ along the lines espoused by the Arnold Foundation and others,” Williams said. “Social Security is absolutely essential for many Americans who have no other retirement savings, and it is a vital component of those public retirement systems where it has been integrated with their model,” he continued. “Social Security underscores the importance of having a retirement benefit that you cannot outlive, unlike the defined contribution model that the Arnolds champion.” “However, to argue that the Federal government should consider making Social Security mandatory for all public employees ignores the financial impact such a move could have on state and local government coffers, as well as on the current benefit structures of millions of teachers and other public employees,” Williams warned. “Bellwether would better serve young teachers who choose to leave the profession by devoting the same time and money on encouraging them to roll their refunds over into other retirement savings vehicles as Bellwether spends on trying to convince these young workers that their typical failure to do so is somehow the fault of the public sector’s proven retirement model that continues to serve career teachers so well,” Williams concluded. Bellwether Report: Uncovered: Social Security, Retirement Uncertainty, and 1 Million Teachers Teacherpensions.org Blog Post: “Teachers Are Mobile and Need Portable Retirement Benefits” NASRA Staff Memo: “Summary of Observations Regarding Friends without Benefits, by Bellwether Education” Leigh Snell Director of Federal Relations National Council on Teacher Retirement [email protected] • (540) 333-1015 9370 Studio Court Suite 100 E | Elk Grove , CA 95758 | (916) 897-9139 [email protected] nctr.org
Posted on: Wed, 31 Dec 2014 23:18:14 +0000
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