Chad Aldeman, Author at Education Next https://www.educationnext.org/author/caldeman/ A Journal of Opinion and Research About Education Policy Fri, 04 Nov 2022 13:23:43 +0000 en-US hourly 1 https://wordpress.org/?v=6.5.5 https://i0.wp.com/www.educationnext.org/wp-content/uploads/2019/12/e-logo.png?fit=32%2C32&ssl=1 Chad Aldeman, Author at Education Next https://www.educationnext.org/author/caldeman/ 32 32 181792879 Why Are Fewer People Becoming Teachers? https://www.educationnext.org/why-are-fewer-people-becoming-teachers/ Wed, 28 Sep 2022 09:00:20 +0000 https://www.educationnext.org/?p=49715844 Getting the answers right can help shape a response

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Graduates of Teachers College, Columbia University, Class of 2022 celebrate the successful completion of degree requirements in the fields of education, health and psychology on Monday, May 23, 2022.

The competition for labor has never been more intense. Employers have more job openings than ever before, and there are fewer potential employees to fill those roles. The unemployment rate is near pre-pandemic lows, and there are few working-age adults who are not already employed.

These labor problems are hitting schools particularly hard. Even flush with a surge of federal dollars, districts simply can’t hire as many people as they would like to.

The supply of new teachers is also down significantly. Depending on the data source, there are 20 to 30 percent fewer people going into teaching each year than there were a decade ago. Those numbers are not likely to rebound quickly.

What caused the decline in teacher-preparation enrollments and completions? Until we diagnose the problem accurately, we won’t be able to devise solutions to fix it. To that end, I offer a few theories below and attempt to unpack how much truth there is behind each one.

What does the data say?

Whichever theories we have for the decline in teacher-preparation completions, they need to fit the facts. We know that teacher-preparation enrollments and completions are down, but by how much, and when did the declines start?

As Dan Goldhaber and Kris Holden describe in a 2020 CALDER brief, there are two main data sources used to understand the supply of new teachers: Title II reports and the Integrated Postsecondary Education Data System.

Title II reports are collections from states and the U.S. Department of Education that capture the number of people enrolling in teacher-preparation programs and earning teaching certificates. This data includes traditional preparation programs at colleges and universities, as well as alternative preparation programs, which may or may not be housed at colleges and universities. The Title II data only go back to the early 2000s, though, and cannot be disaggregated by gender or level of degree awarded.

In contrast, the Integrated Postsecondary Education Data System tracks the number of people completing college degrees by level and by major. Annual data goes back to 1960, and it can be broken down by type of degree and by gender. There are some people who earn college degrees in education but do not pursue teacher licenses (let alone new ones), however, and there are some people who earn teaching licenses outside of colleges and universities.

Still, the patterns across the two data sources look remarkably similar. Here’s a graph from the Goldhaber and Holden brief showing the number of completers according to data from Title II (in blue) and from IPEDS (in red).

 

Figure 1

 

The Goldhaber and Holden piece came out in 2020, and we now have a bit more data and nuance to add to the story.

First, both Title II and IPEDS data were starting to show a slight uptick in the years leading up to the pandemic. The gains weren’t large, but they did reverse a multiyear trend, and any explanation for the decline in the supply of teachers must take this into account.

Second, the Title II data shows that all of the decline in the supply of new teachers came from traditional preparation programs at colleges and universities. From 2013 to 2019, the number of individuals who completed traditional preparation programs fell by 29 percent, while it rose by 18 percent for alternative-route programs, which tend to be shorter and cheaper (See Table S1.4 here.) Traditional programs still prepare about 3.5 times as many new teachers as alternative-route programs, but any theory attempting to explain the broader decline in the supply of new teachers has to explain the differences across program type.

Third, the demographic composition of those pursuing a career in teaching has changed over time. The profession has become even more dominated by women. Additionally, while fewer people are pursuing bachelor’s degrees in education, we now confer about twice as many doctorates in education per year as we did two decades ago. This is at least suggestive evidence that there are fewer people who want to try teaching but more people who are dedicated enough to stay and reach the highest levels of the profession. That distinction is important when we get to theories for the decline in new candidates.

Fourth, we’ve had declines in the supply of new teachers before. We actually had a much larger one in the 1970s and 80s. The graph below shows the long-term trend in education degrees from the IPEDS data.  Bachelor’s degrees in education are represented in blue. They reached a peak in 1973 and have never returned to that high.

Master’s degrees in education are represented in orange. This data can’t disentangle who is choosing to pursue a master’s to improve their skills or earn higher pay from who is essentially required to earn a master’s degrees in order to enter or remain in the profession. But we do know that, over time, states have built up more requirements for who can enter and remain in the teaching force, pushing a much higher percentage of incoming teachers to earn master’s degrees. As we’ll see later, higher barriers to entry can have a meaningful effect on the number of people who choose to enter the teaching profession.

 

Figure 2

 

The most recent downtrend in the 2010s looks almost mild in comparison to what happened in the 1970s and 80s. Starting in 1974, the number of people completing a degree in education fell by 46 percent. After 14 straight years of declines, we had 140,000 fewer people earning education degrees in 1987 than we did in the peak year of 1973.

Contrast that earlier decline with the 19 percent dip we saw more recently. We experienced seven straight years of declines, with 57,000 fewer education degrees awarded in 2018 than were awarded in 2011.

This pattern is what I’m concerned about today. Why did it happen? What caused it, and what would get the numbers back up?

Note that we’re talking about national totals here, but that’s not how the teacher-labor market works in practice. Districts don’t need to hire a generic teacher; they need to hire individual candidates with specific licenses to fill particular roles. Even in today’s tight labor market, district leaders report having a much harder time filling special education and STEM positions than they do filling elementary or social studies positions.

Some people may be inclined to guess as to what’s happened to the supply of new teachers since the pandemic. On one hand, it’s possible fewer people went into teaching because they didn’t like the transition to virtual learning or didn’t feel comfortable in schools. But it’s also possible more people entered teaching thanks to states’ temporarily waiving or permanently reducing their licensure requirements. We don’t know yet. For now, all of our objective data ends with a slight uptick in 2020, so our theories need to fit this fact pattern.

Theory #1: Covid-related changes have made teaching less enjoyable.

Theory #2: Book bans, the fight over CRT, and culture wars have made teaching more political.

I’m going to take these two together and declare them FALSE. Simply put, they don’t fit the fact pattern described above. The decline in teacher preparation occurred before we had even heard about the novel coronavirus we now know as Covid-19.

The culture war issues can’t explain the biggest declines from 2013 to 2015 or the slight uptick in our most recent data (2018–2020). They also don’t fit with the discrepancy between traditional and alternative-route programs. It’s plausible these issues could exacerbate an already tight labor market going forward, but we don’t have good evidence either way on that yet.

Theory #3: Respect for teachers has declined, which reduced the supply of potential candidates.

This is a hard concept to define, but I’m going to rate this one as FALSE as well. The main data point used to back this claim is what used to be known as the MetLife survey and is now the Merrimack College Teacher Survey. While it does show a decline in teacher satisfaction, the survey questions have changed over time, making it impossible to make long-term comparisons.

Meanwhile, Gallup’s annual rating of the honesty and ethics across professions continue to show teachers as one of the more-respected occupations. According to their poll results, respect for grade-school teachers was steady from 2010 to 2017 before hitting an all-time high in 2020. It did take a slight dip in 2021, driven by a notable downturn in positive ratings among self-identified Republicans, but none of that fits with the trajectory in the supply of new teachers.

Theory #4: Starting salaries are too low to attract new teachers.

As recent data from the National Education Association show, teachers’ starting salaries really did lose ground to inflation from 2011 to 2018, and they were starting to grow faster leading up to 2020. This fits the fact pattern.

However, I rate this one as MOSTLY TRUE because we don’t have good empirical evidence linking teacher salaries with the supply of teachers. It’s certainly likely to have an effect, but it would be nice to have more-precise estimates of how much a change in starting salary would affect the supply of new teachers.

Still, this theory bodes poorly for the coming years. Teacher salaries tend to be sticky and trail the broader economy. As inflation has risen rapidly over the last year, teachers’ starting salaries have not kept up. That could put a damper on the number of new candidates who want to enter the profession in the coming years.

Theory #5: Newly erected barriers have made it harder and less desirable to teach.

You may not remember it now, but, during the Obama Administration, there was lots of talk about “raising the bar” on the teaching profession by making it tougher to become a teacher. The agencies that accredit teacher-preparation programs merged together and adopted tougher standards for who could enter their programs by adopting higher GPA and ACT/ SAT score requirements, among other measures.

Around the same time, 18 states adopted a new, more-rigorous teacher-licensing test called the edTPA in the hopes that it would do a better job of screening out ineffective candidates. When researchers at the University of Illinois looked into how the adoption of the edTPA affected the supply of new teachers, they found that it “reduced the number of graduates from teacher-preparation programs by 14 percent.”

In 2010 and 2011, states also enacted a number of other teacher reforms, such as implementing tougher evaluation systems, more rigorous bars for tenure, and new licensure exams. A paper by Matt Kraft and colleagues found that these “accountability reforms reduced the number of newly licensed teacher candidates and increased the likelihood of unfilled teaching positions, particularly in hard-to-staff schools.”

These reforms might have been worthwhile if they scared away some teachers who would not have been effective in the classroom, but I’d rate the barriers-to-entry theory as MOSTLY TRUE for explaining the decline in the total supply of new teachers. It has some solid empirical evidence behind it, but the timing is conflated by other factors, and it doesn’t explain the slight increase in recent years.

Theory #6: Broader economic trends have pushed would-be candidates into other fields.  

The number of people completing degrees in education has gone down over time, but it’s down by a similar rate as the number of people completing degrees in ethnic, cultural, and gender studies; English language; foreign languages; and library science. In fact, some of the biggest changes over the last decade have been in relation to the decline in the number of people completing degrees in broader liberal arts and humanities programs.

I’d rate this theory as TRUE. Rather than being an outlier, education fits well within the broader societal patterns. Over time, people have chosen to study business, nursing, and computer science and other STEM fields at the expense of the humanities, including education.

What’s next? And what can policymakers do?

Based on the timing and the magnitude of the declines in new teacher candidates, I think it’s fair to give partial credit (or blame?) to three main factors: low starting salaries, tougher barriers to entry, and broader economic trends. State and local policymakers can do little about the macroeconomy, but they do have authority on the other two factors.

First, if policymakers are worried about teacher shortages, they should really focus on starting salaries. Starting salaries are the most likely factor to affect potential candidates. Teacher turnover is highest among teachers in the early stages of their careers. And yet states like Alabama and Mississippi recently adopted eye-popping pay raises for the longest-serving veterans. Boosting starting pay may have been a better bet to improve recruitment and retention rates.

District leaders should be looking at their specific shortage areas. If they suffer from chronic shortages in certain schools or struggle to staff special-education and STEM roles, they may want to revisit their compensation packages. Over the last two years, we’ve seen a number of districts adopt flat-dollar incentives to address their longstanding recruitment and retention issues. Districts struggling with staffing shortages in specific areas may want to consider similarly targeted approaches.

State leaders are already considering modernizing their licensure requirements. First we saw it during the pandemic with the requirements for new teacher candidates, then states started to drop requirements for who could be a substitute teacher. More recently, New York decided to drop the edTPA over concerns it was reducing supply and harming diversity efforts. Will we see more of this?

Some people are concerned about teacher quality suffering, but it could be a good thing if states are eliminating entry requirements that do not have a strong link to effectiveness. The current requirements keep out some promising candidates but have little value in predicting who’s going to become a good classroom teacher. Instead, states could give more autonomy to districts to select their own teachers at the front end, while requiring teachers to demonstrate effectiveness in order to qualify for more permanent, advanced instructional roles.

Districts may not control the licensure requirements for teachers, but they do determine what types of educational credentials they need in other roles. With the unemployment rate for college graduates near all-time lows, districts will need to think carefully about their labor needs. Can they change who they consider for their job openings, which might mean potentially lowering their educational requirements? Will they partner with students or families to play a more active role and fill some of the district’s labor needs, as some districts have done already?

The issues are complicated, and it’s tempting to craft a narrative based on what’s hot in the news today. But it’s important to align our story with the actual facts on the ground. The data is pointing to actionable steps for policymakers, if they’re willing to listen.

Chad Aldeman is policy director of the Edunomics Lab at Georgetown University.

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Maintenance of Equity: A New Provision with Big Implications for District Budgeting https://www.educationnext.org/maintenance-of-equity-a-new-provision-with-big-implications-for-district-budgeting/ Thu, 19 Aug 2021 08:59:26 +0000 https://www.educationnext.org/?p=49713848 An expansive interpretation could have unintended consequences

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Department of Education logo

When Congress passed the American Rescue Plan in March 2021, we were happy to see that it included new language requiring districts to protect high-poverty schools from disproportionate budget cuts. In the last recession, state revenue declines hit districts hard, forcing hiring freezes and seniority-based layoffs that often hurt the poorest schools most.

Thankfully, state revenues are quite healthy, with many states announcing higher-than-anticipated increases in funding for schools. Like many others who follow school finance closely, we assumed the new “maintenance of equity,” or MoEquity, provision would only be relevant in the small handful of places with revenues declining.

But then, this summer the U.S. Department of Education released its guidance on the MoEquity provision, asserting that the provision applies even if revenues are growing. As written, it would have forced thousands of districts to rewrite their budgets just as they were trying to reopen schools. After hurried and intensive behind-the-scenes conversations and a lightning- fast-by-government-standards response, the department released a new Dear Colleague letter which gives districts more flexibility on how to implement the MoEquity rule and permits districts with rising revenues to file for a one-year delay.

While districts will appreciate the added flexibility and the timeline extension, the more expansive interpretation could still have unintended consequences, and there may be better mechanisms to drive equity than the formulas dictated in the guidance.

How the MoEquity Provision Works

The law states that:

As a condition of receiving funds under section 2001, a local educational agency shall not, in fiscal year 2022 or 2023—

(A) reduce per-pupil funding (from combined State and local funding) for any high poverty school served by such local educational agency by an amount that exceeds

(i) the total reduction in local educational agency funding (from combined State and local funding) for all schools served by the local educational agency in such fiscal year (if any); divided by

(ii) the number of children enrolled in all schools served by the local educational agency in such fiscal year

A similar rule governs staffing levels. Many people, your authors included, read this language as only applying to districts that were reducing their spending.

The U.S. Department of Education interpreted it differently. The department said that districts with flat or growing revenues had zero reductions and that, thus, no high-poverty school could see a reduction greater than zero in either spending or staffing ratios. The law exempts small districts under 1,000 students, but that still leaves about 7,000 districts potentially on the hook.

The law includes a specific definition of “high-poverty schools,” for this provision only. Every district must rank each of their schools in terms of poverty. The district’s highest-poverty 25 percent of schools are protected “high-poverty” schools for purposes of MoEquity. Every district—regardless of whether all of its students are low-income, or whether the district has only a few pockets of poverty—must rank their schools in this manner to create a list of protected schools.

Each of the protected schools must meet a spending and a staffing test. They cannot experience a decline in per-pupil spending or staff per pupil over the next two school years, as compared to the 2020-21 school year. Figure 1 shows the formulas behind each of the tests. The tests are administered for each of the protected high-poverty schools individually.

 

Figure 1: Districts must pass MoEquity fiscal and staffing tests

Figure 1

 

These formulas may appear reasonable at first blush. But their reliance on student enrollments, the comparison with the prior year’s allocations, and the focus on individual schools could ultimately force districts into some costly, inefficient, and potentially inequitable decisions.

Timeline Problems Pose a Challenge for Equity

The first challenge for the MoEquity provision—and really any federal rule attempting to govern district-level spending decisions in real time—is that most districts simply don’t have school-by-school budgets. That means they don’t always look at the school by school consequences of their budgeting decisions.

It wasn’t until the 2015 Every Student Succeeds Act that states began collecting school-by-school expenditure totals, but that took time, and the most current data at this point are from 2018-19. While our team at the Edunomics Lab recommends more districts put that type of data to use, we are not aware of many district budget offices that are actually equipped to do it in real time yet.

So instead of actual expenditures, the MoEquity rules will rely on estimates and projections. To set a baseline, districts can use prior enrollment data, an average of enrollment over multiple years of time, or estimate enrollment data for the coming year. When looking forward, districts can meet the tests by using average teacher salaries and projected staffing levels, rather than actual expenditures.

These flexibilities will help ease the implementation challenges, but they’ll undermine the underlying goals of the MoEquity provision. Using average teacher salaries, for instance, can hide large pay discrepancies across schools. And districts could put forward ambitious hiring plans on paper, only to be thwarted by hiring challenges. The guidance explicitly exempts districts with “unpredictable changes in student enrollment or personnel assignments.” Once a district determines it passes the tests based on its estimates, it does not have to re-examine its results.

Creative financial officers will be able to figure out how to pass the MoEquity tests by finding an enrollment metric that fits their purposes. But in an ideal world, we’d want districts to track actual results, not just certify their intentions. In other words, the MoEquity guidance may provide the appearance of equity without actually ensuring it.

The Outliers Problem

The MoEquity rule protects individual schools, and the protected schools cannot be considered as a group. It doesn’t matter why a school might have received extra dollars or staffing in the prior year, the funding levels must stay, even if the funding comes at the expense of other schools or if the rationale for the extra funding is no longer relevant (such as when a student with disabilities no longer needs a dedicated aide). The federal guidance invites requests for exemptions but cautions that very few will be granted.

In the real world, these outlier cases are quite common. They vary by location, but they’re usually tied to where a school’s enrollment happens to be unusually low or some spending anomaly has pushed up the per-pupil figures outside of a normal range. If a school received $25,000 per pupil in prior years, MoEquity will require that for each additional student at the school, the district must allocate another $25,000, regardless of the needs of the new student.

More Equitable Districts May Be More Likely To Fail

Because the MoEquity rule compares districts with their own prior spending, it will hold more equitable districts to a higher standard than less equitable ones. In our forthcoming study of 40 large districts, we found Denver to be the most “progressive” in that it spent nearly $1,500 more in state and local funds on its low-income student as compared to its non-low-income students. Some districts were regressive, meaning they spent less on their low-income students than their non-low-income students. A progressive district like Denver will be required to clear a much higher hurdle (involving more dollars) to pass the MoEquity tests than more regressive districts will.

The Remedies Could Be Counterproductive

Perhaps most concerning, the MoEquity provision could work to supersede districts’ other efforts to send more resources to low-income students. To pass the tests, districts might have to override their weighted student formulas or targeted allocation formulas — many of which are used to direct more dollars to schools with higher concentrations of English learners, foster or homeless students, students with disabilities, and students living in poverty. That runs counter to the goals behind the MoEquity provision, and there are better options that could more reliably ensure districts are allocating their dollars toward students who need them the most.

What Should the Department of Education do instead?

On average, the federal government provides about 8 percent of school district budgets. It’s understandably tempting but practically complicated to use that leverage to steer how districts spend the other 92 percent of their budgets. The recent rounds of federal relief funds provide a large infusion of money, but that’s temporary. The feds should not abandon the notion of pressing states and districts to more equitably distribute resources, but Washington will need to carefully think through any financial test to understand how it will play out across districts and schools to ensure it isn’t unleashing more harm than good.

In the long run, Congress could consider several alternatives to the MoEquity rules. They could start by calling for more transparency about how districts allocate their money by requiring any district receiving federal dollars to compare how much money they provide to their highest-poverty schools compared to all their other schools. Such a requirement could be a natural next step from the recent ESSA requirement to publicly report school-by-school expenditures. This transparency requirement would have the added benefit of getting more districts to examine and weigh these figures when preparing their next year’s budgets — possibly breaking them out on a school-by-school basis, which would facilitate an easier examination of district spending decisions in closer to real time.

Federal lawmakers are always going to struggle to come up with rules that apply to every district and every school. Instead of the MoEquity’s focus on individual schools, Congress should instead consider a district’s high-poverty schools as a collective group, rather than each school individually. That would avoid the outliers problem. Districts that were found to be regressive could work with their state education agency to devise a plan to address it over a short but reasonable period of time.

Above all else, any federal test should focus on dollars, not staffing levels or other line-item allocations. We warn federal lawmakers against prescribing how districts spend their money or how many people they employ in their schools. The combination of spending and staffing tests used under MoEquity will hamstring districts and potentially force them into staffing and hiring decisions that they won’t be able to afford when the federal money runs out in a few short years.

Without changes, the MoEquity guidance could cause an unnecessary upheaval in American public schools. It could lead to a widespread re-shuffling of spending and staff, with no guarantee that it would lead to more equitable resource allocations within districts. To the Department of Education’s credit, its latest Dear Colleague letter said it was, “eager to learn from the experiences and perspectives” of states, school districts, and other stakeholders, and that it, “plans to use the comments it receives to inform future guidance and potential rulemaking.” So they’re open to feedback on the MoEquity rules now and how those are playing out on the ground.

As districts start planning for their next budget season starting in November, we think the U.S. Department of Education would be wise to consider making its one-year moratorium permanent and to interpret the law as focusing exclusively on the places that are making real reductions to spending and staffing. The specifics of the MoEquity rules make more sense when applied to districts that are cutting their budgets, rather than all districts nationwide. That would provide more time and space to focus on the places truly at risk of making harmful and inequitable spending cuts.

Marguerite Roza is research professor at Georgetown University and director of Edunomics Lab. Chad Aldeman is policy director at Edunomics Lab.

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New Federal Money is Coming to Schools. There Are Other Options for Spending it Than Hiring Lots More Staff. https://www.educationnext.org/new-federal-money-coming-to-schools-other-options-for-spending-it-than-hiring-more-staff/ Wed, 07 Jul 2021 09:00:28 +0000 https://www.educationnext.org/?p=49713696 Try tutoring, time, technology, or other new ideas instead.

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Illustration of a hand dropping a coin into a school

For decades, schools have added new staff at the expense of other potential investments. Now, with billions of federal relief dollars on the way, school district leaders should invest in targeted approaches to address the Covid-19 slide and maximize student learning opportunities.

Over the past year, Congress has invested nearly $200 billion to support K–12 education. School district leaders now face tough decisions about how to maximize those investments. Will they hire more teachers, pay existing teachers more to lengthen the school year or something else?

If history repeats itself, most of that money will go toward adding more staff. The question is whether hiring more staff now would be the best way to help students recover from a year’s worth of pandemic schooling.

We think not.

For starters, this is one-time money. Once the funds are spent, district leaders would most likely have to lay off the thousands of employees they hired.

We’ve also tried hiring more staff before. In fact, adding staff is the main “big bet” we’ve pursued in public education over the last 50 years. Whenever spending increased, so did school staffing. Nationally, public schools spend about $14,000 per pupil. After accounting for inflation, that’s more than double what they spent in 1970.

The vast majority of that money has gone to hiring more staff. Schools today employ many more teachers per student than they did in prior eras, across all grade levels and subjects, including art, music and foreign languages.

But in recent years, most staffing increases came from non-teaching roles. Schools have employed more counselors and specialists, like reading coaches; instructional aides to work with English learners and students with disabilities; and vice principals and administrators to oversee new regulatory and technological tasks. Numerically speaking, public schools have gone from employing one staff member for every 14 students in 1970 to one for every 8 students today.

While some of the spending investments to increase school staff have brought positive benefits for students, it has come at the expense of investing in other critical areas. For example, the new money didn’t buy more instructional time for students. Instead, school calendars look the same as they did in 1970, with the average student attending school 179 days a year for 6 hours a day.

Higher spending has also not led to higher teacher pay. Adjusted for inflation, the average teacher salary is lower than it was in 1990, and barely higher than in 1970. Had we bet on raising salaries, today we’d have a higher-paid workforce—and possibly a more diverse group of teachers.

Another area starved for investment is in different delivery methods, like new technologies or new approaches to use and assign staff within schools. Those strategies might have helped with disruptions like Covid-19, but we didn’t pursue those ideas at scale with increased investment.

Unfortunately, old habits are hard to break. The teachers’ union in New York City is pressuring the district to use the bulk of its stimulus funds to hire 11,500 more full-time staff members. Other places are considering similar plans, and many districts—especially those that operated remotely for the bulk of the year—have yet to announce their plans.

So how can schools invest their money differently this time? The very thing so many students missed this year was time in schools with teachers and peers. Depending on the grade level and school, many students received only half to two-thirds of a normal year’s worth of school, equivalent to missing 60 to 100 days. Recovering that lost time seems like it would be an obvious choice for many districts. Some city and state leaders are looking to allocate funds to help students make up that loss. San Antonio, for instance, is planning to extend the school year by 30 days for the next four years.

Relatedly, because the pandemic had very different effects on students, different interventions are needed to help those students who suffered steep setbacks. Targeted approaches like individual or small-group tutoring could provide the additional time and support to help struggling students get back on track. School districts in Kansas are considering paying teachers more money to teach summer programs. Rhode Island and New Hampshire are working with Khan Academy, the online learning site, to launch a tutoring platform. And Idaho gave a portion of its earlier stimulus funds directly to low- and moderate-income families to purchase educational materials, devices and services.

These examples represent different visions for improving student outcomes, and there may be more than one best option. But that’s the point. As the next budget season approaches, will district leaders find themselves using the go-to strategy of the last five decades, or will they meet the moment with new and different ideas for what students need now?

Marguerite Roza is research professor at Georgetown University and director of Edunomics Lab. Chad Aldeman is policy director at Edunomics Lab. Originally published at Route Fifty.

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With Federal Relief Dollars on the Way, Districts Face Big Decisions https://www.educationnext.org/with-federal-relief-dollars-on-the-way-districts-face-big-decisions/ Wed, 07 Apr 2021 10:00:57 +0000 https://www.educationnext.org/?p=49713404 Reduce class sizes, lengthen the school year, provide tutoring—or let principals decide?

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President Joe Biden signs the American Rescue Plan, a coronavirus relief package, in the Oval Office of the White House, Thursday, March 11, 2021.
President Joe Biden signs the American Rescue Plan, a coronavirus relief package, in the Oval Office of the White House, Thursday, March 11, 2021.

District leaders may be celebrating the $122 billion in stimulus relief Congress approved for K-12 schools last month. But with more money comes more pressure for local leaders to spend those dollars in ways that do the most good for students while avoiding budget pitfalls.

There are few limitations on the funds. The law stipulates that 20 percent of the money be used to “address learning loss” among students through the use of “evidence-based interventions.” Congressional appropriators listed summer programs, extended school days, or afterschool programs as optional uses of money, but, as a practical matter, districts could justify almost anything from tutoring to improving building-ventilation or even adding more staff. Honestly, we’re challenged to find something that districts couldn’t spend their money on.

However, the aid is temporary. Leaders who commit to things they won’t be able to afford once the money runs out are setting themselves up to fall off a funding cliff in a few years.

So, how can district leaders make good spending choices? Now is a great time to employ the classic “would you rather” test to help explore spending tradeoffs and think through the cost and value of competing investments with finite dollars at hand. Crafting a range of spending options that all carry the same price tag can help leaders grapple with which option has the potential to do the most good for students, while acknowledging the tradeoffs associated with each choice.

The latest round of stimulus works out to an average of $2,450 per student, although the amounts vary widely by state and school district. Consider the following spending options for a district aiming to spend a portion of its money to alleviate unfinished student learning. Each option would cost about the same $1,000 per pupil. For that amount, a district could:

A. Reduce class sizes by two students for a year
B. Extend a school year by four weeks for all students
C. Provide one-third of students with a year’s intensive tutoring
D. Offer 4-week learning camps for all K-5 students this summer and next
E. Give principals the money to decide what makes the most sense in their school

These are back-of-the-envelope estimates, and districts should run their own numbers. But there are clear tradeoffs across and within each option.

The class size reductions in option A would reduce each teacher’s workload a bit, but they would not add any more instructional time for students who may have only received a partial education this year. To make it work, districts would need to hire new, full-time teachers, which could get tricky when the money runs out.

Option B would add instructional time for students, but like option A, it’s a one-size-fits-all approach, meaning the dollars wouldn’t be targeted specifically to the kids who need the most support.

The tutoring in option C could be used to target aid directly to the students who needed it the most. Success will hinge on whether schools can launch a large-scale, effective tutoring program outside of their normal classroom schedules, as well as whether the students who need it agree to participate.

Context matters too. For instance, the learning camps in option D may work better in communities where there’s more appetite for summer programs, but take-up rates would depend on community preferences and the availability of competing options.

Shifting the decisions to principals, as would be the case with option E, allows school leaders to customize supports based on the needs of their own mix of students. While that might spur some innovative responses, it would mean less consistency from school to school.

Another important step in the “would you rather” test is to consider what use of the funds would bring the most value to the family. From a family’s perspective, does their child need tutoring or a summer camp? Or would they prefer to spend the $1,000 on something else entirely?

Every district will need to decide which tradeoffs make sense based on their own community. But whatever option(s) a district picks (from this list or one they draft themselves), the imperative for all district leaders is the same: Focusing on doing the most for students with the money.

Education spending always involves choices. Smart choices require understanding the value of each dollar, and “would you rather” questions help leaders to reflect on their assumptions about how a program or service is best structured, what outcomes will be achieved, the benefit to the student, and at what cost.

“Would you rather” choices also help build community engagement and trust. Parents, teachers, and other stakeholders can be invited to weigh their preferences among different cost-equivalent scenarios.

It’s no accident that all the spending options presented above are cost-equivalent investments over a limited period of time. That’s because districts can get into trouble when they obligate themselves to recurring spending that has no end date.

Given the time-limited nature of the federal funds, we caution districts against using the funds to hire a slew of new employees in the same ways as they did pre-pandemic. When the money runs out, no district wants to be considering furloughs or layoffs a few years from now. And there are other, more financially sustainable options for adding labor, such as contracting or paying stipends to current staff who agree to take on more work.

One thing’s for sure: District leaders should prepare to be judged for how they spend their federal relief money. Big one-time sums draw big scrutiny. Those who take time now to weigh a range of cost-equivalent options may avoid decisions that come back to haunt them long after the pandemic abates.

Marguerite Roza is research professor at Georgetown University and director of Edunomics Lab, where Chad Aldeman is policy director.

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How to Fix Teacher Pensions https://www.educationnext.org/how-to-fix-teacher-pensions-defined-benefit-401k-contribution/ Wed, 08 May 2019 00:00:00 +0000 http://www.educationnext.org/how-to-fix-teacher-pensions-defined-benefit-401k-contribution/ It is possible to re-design defined benefit pension plans so that they offer adequate retirement benefits to more teachers.

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Much of the debate over teacher pensions is framed as an either/or: Either we keep current defined benefit plans or we shift teachers to low-cost 401k-style defined contribution plans like in the private sector.

In a recent paper with Marisa Vang, we show that this is a false dichotomy. There are cost-neutral alternatives, such as cash balance plans or well-designed defined contribution plans, that could do a better job of providing all teachers with retirement security than the typical defined benefit plan does today.

Yet adopting a wholly different model is not the only option for state policymakers who want to provide more teachers with adequate savings—and that’s probably a good thing, since defined benefit plans are likely to be with us for a while. In our paper, we estimate that under current plans about 80 percent of new, young teachers will leave before qualifying for retirement benefits that meet our definition of “adequate” retirement benefits. This post explores ways to improve that figure using existing defined benefit pension plan structures.

There are two basic ways states could accomplish this. One would be to significantly increase the generosity of current plans. But to reach our adequacy thresholds this way, states would have to increase benefits substantially, essentially doubling the cost of their current plans.

Alternatively, there are cost-neutral ways for defined benefit plans to provide adequate benefits to all workers, but states would have to radically restructure their current plans.

Before diving into those options, let me say a few words about the adequacy target and the test we’re asking teacher pension plans to meet. The adequacy target itself is pretty straightforward. Based on calculations by financial experts on what level of annual saving is needed to afford a comfortable retirement, we established a minimum threshold of 10 percent of savings per year. That includes both the employee and employer contributions, and is in addition to Social Security. (Our paper took Social Security for granted, but 40 percent of public school teachers do not participate in Social Security and thus rely solely on their pension plan. Readers should keep this in mind, as it does play an important role in how we should think about the adequacy of teacher retirement benefits.)

Last, we focused our paper on the retirement benefits provided to teachers who begin their careers at age 25. This is a fairly typical entry point for new teachers, but it represents a hard test for pension plans. Due to the way teacher pension plans work today, teachers who enter the profession at younger ages have to stay much longer to qualify for adequate benefits and have the most to gain from a more progressive benefit structure. Since we assumed a five-year vesting period for all the models in our paper, I’m using that threshold again here.

Let’s look first at how to achieve adequacy through benefit enhancements, and then turn to how to achieve adequacy through restructuring.

Achieving Adequacy Through Benefit Enhancements

Until quite recently, the history of teacher pension plans was primarily one of benefit enhancements. States created their plans decades ago, and many featured all-or-nothing provisions, where the benefits were designed solely for long-serving veterans. Over time states enhanced those benefits by reducing vesting periods, raising multipliers, and lowering normal retirement ages. This trend peaked in the year 2000, when the median state pension plan was fully funded, and state legislators pursued significant benefit enhancements.

Since then, as states have grappled with growing unfunded liabilities, they’ve gone through several rounds of benefit cuts and the creation of new, less generous benefit tiers for newly hired teachers. As we documented a couple years ago, retirement benefits are, on net, worse for new teachers starting out today than any time in the last 30 years. That trend has only continued since.

But what if we were to reverse these trends? What would it take to get all vested teachers up to a minimally adequate retirement savings target?

To model this out, I started with a very simple baseline pension plan. I assumed that workers were eligible for a pension worth 2 percent multiplied by their years of service and their average salary over the final three years of their career, that they vested in the system after five years of teaching, and that they became eligible to collect benefits at age 60. (See my full assumptions at the end of the post.)

In Figures 1A and 1B below, the solid blue line in both graphs shows how benefits would accumulate under this plan. (For each figure in this post, version A focuses in on teachers between the ages of 25 and 40, who comprise the bulk of those failing to hit adequacy targets under current plans. Version B then shows the same data for the full age distribution.) As a point of comparison, the red dotted lines show the minimal adequacy target from the paper, equivalent to someone saving 10 percent of their salary each year from personal as well as employer contributions and earning a 4 percent real rate of return on their investments. In this model, it would take teachers 20 years of service to reach the adequacy target, after which their pension values would increase substantially.

Consider someone who starts at age 25 and leaves after 10 years of teaching. She will qualify for a pension, but she won’t be able to collect it until she reaches age 60, and it will be based on her salary in the year in which it was earned. Compared to the adequate savings target, this teacher will have retirement assets $22,000 less than what she should have saved to be on track for a comfortable retirement. If she continues teaching her pension value will eventually more than surpass the adequate savings target, but the risk is that she’ll leave before then. In fact, as Figure 1B shows, teachers would have to stay 20 years before qualifying for benefits that meet the minimal adequacy threshold.

This arrangement will work out fine for some teachers, but most teachers will fall short. To afford a comfortable retirement, teachers who fall short of the adequacy targets will have to work longer, save more in their personal accounts, or rely on other forms of income in their retirement years.

 

Figure 1A: Retirement Assets Under a Typical Teacher Pension Plan Versus a Minimal Adequacy Target, By Age

Figure 1B: Retirement Assets Under a Typical Teacher Pension Plan Versus a Minimal Adequacy Target, By Age

 

This baseline model assumes the total cost of the plan to be equivalent to 12 percent of a teacher’s salary. States could provide all vested teachers with adequate benefits though benefit enhancements, but it would require roughly doubling the contribution rate. Although states could pull these levers in different combinations, here’s one way to get there:

Step 1: Increase the multiplier from 2.0 to 2.5 percent. Teachers would reach the adequacy point by year 16, but contribution rates would need to rise by 2.4 percentage points.

Step 2: Further increase the multiplier from 2.5 to 3.0 percent. Teachers would reach the adequacy threshold by year 13, but contribution rates would be 4 percentage points higher than the baseline.

Step 3: Keep the multiplier at 3.0 percent but drop the normal retirement age to 55. Teachers would reach the adequacy threshold by year seven, but contribution rates would be 8.5 percentage points above the baseline.

Step 4: Keep the normal retirement age at 55 and increase the multiplier to 4.0 percent. All teachers would reach the adequacy threshold by the time they vest in year five (success!), but contribution rates would need to be 11.9 percentage points above the original baseline.

Figures 2A and 2B below show how benefits would accumulate at each of these steps. As before, the dark blue lines represent the original baseline defined benefit plan, the dotted red lines represent the adequacy target, and the lighter-colored lines represent steps 1-4. As the graphs show, these steps have pushed all vested teachers above the adequacy target, but in a highly inefficient manner. For example, the retirement assets of a five-year veteran would rise by about 69 percent, an increase worth about $11,000 in lifetime retirement wealth for that teacher. But as Figure 2B shows, a 30-year veteran who reaches age 55 would have seen the value of her pension increase by 163 percent, or almost $800,000.

 

Figure 2A: More Teachers Could Reach Adequacy Targets Through Benefit Enhancements

Figure 2B: More Teachers Could Reach Adequacy Targets Through Benefit Enhancements

 

This inefficiency may explain why no state has gone anywhere near this far with their defined benefit pension plans. But these are the same levers that states pulled when their finances were in better shape. If anything, states sought to keep costs down somewhat by focusing their spending even more on long-term veterans, through multipliers that increase only after certain longevity thresholds (say 20 or 30 years) or retirement thresholds tied solely to years of service (rather than age). In other words, my example here is extreme, but not because states weren’t trying to get there.

Achieving Adequacy Through Restructuring

There is another way to provide all teachers with adequate retirement benefits through traditional defined benefit pension plans, but the usual tweaks to the basic benefit formulas won’t work. It would require more radical changes that address the root causes of the problem with existing defined benefit plans–the fact that they are regressive and disproportionately reward long-serving, higher-paid workers.

States could choose to boost their benefits to early- and mid-career teachers by adjusting their rules on the refunds they provide to departing teachers. Currently, teachers who leave a given pension system are able to claim a refund on their own contributions, but in only a few states are they eligible for any of their employer’s contributions. Moreover, most states set their interest credits on the teacher’s own contributions quite low—they could at least peg their credits to their actual investment returns. Still, without any employer match, the only way to get a standard defined benefit plan above the adequacy threshold would be to increase employee contribution rates above 10 percent.

States could help more teachers by offering an employer match on teacher contributions. Just six states offer their teachers any match today, and most of those are partial matches. Colorado and South Dakota come the closest to our target, but even they fall short. South Dakota, for example, provides a 50 percent employer match for non-vested workers and an 85 percent match for vested workers. However, it sets its interest credit at less than short-term Treasury bills, meaning departing workers are getting a match but no real interest on their contributions. Colorado has fixed its interest credit at 3 percent, which is better than a savings account but barely more than inflation, and certainly not enough for long-term retirement savers.

While these types of changes would benefit teachers, I wanted to see if I could reach the adequacy goal solely through modifications to the benefit formula itself. My goal was to ensure all teachers qualified for the adequacy threshold by year five, at no additional cost to the plan.

Essentially, I had to find a way to smooth out the benefits awarded under the baseline defined benefit. First, I lowered back-end benefits by increasing the normal retirement age to 65, lengthened the period over which an employee’s salary was averaged from three years to 10, and introduced a benefit cap of 80 percent of the worker’s final average salary. These changes may sound extreme, but they are directionally similar to the benefit cuts for new teachers that states have adopted in recent years to control costs. They also made it possible to increase the multiplier from 2.0 to 10.0 percent without increasing overall costs. Combined, these changes dramatically increase the share of workers who would receive adequate benefits.

Figure 3A and 3B show what the results look like visually. As before, the dark blue lines represent the baseline defined benefit plan, and the dotted red lines show the adequacy target. In these graphs, the blue lines show the results of what I call a “Progressive Defined Benefit” plan. They illustrate how a defined benefit plan could be designed in such a way to provide adequate retirement benefits to all vested teachers. This type of design deliberately trades away some back-end rewards in order to increase the chances that all entering teachers would leave their years of service with adequate retirement benefits. (Remember, this exercise is looking only at future teachers. I do not recommend states change the benefits already earned by current teachers or retirees.)

 

Figure 3A: More Teachers Could Reach Adequacy Targets Through a Progressive Benefit Formula

Figure 3B: More Teachers Could Reach Adequacy Targets Through a Progressive Benefit Formula

 

Takeaways

The choices I’ve offered here are intended as illustrative examples. I’ve shown that it is possible to re-design defined benefit pension plans so that they offer adequate retirement benefits to more teachers. However, if state leaders agree on that goal, they must be willing to pay higher costs to meet it, or else they must radically re-think their current benefit structures to reach that same goal without ballooning costs.

Reasonable people can disagree with the specific adequacy target I’ve chosen or how to interpret the results. Some might argue my target is too high, although they would be implicitly suggesting that teachers who fall short of the target should make up the savings some other way, such as relying on a spouse, saving more at another job, or just surviving a less-than-comfortable retirement.

Others might argue we should reserve scarce public resources for the longest-serving veterans. That view might sound reasonable, but the exercise here demonstrates that there are ways to provide all teachers with adequate benefits within existing structures.

On the other hand, I imagine some readers might ask why we should go through all this trouble to re-fashion defined benefit pension plans when other alternatives are available. As we write in our recent paper, defined contribution and cash balance plans could easily be designed to ensure all workers had adequate savings regardless of their years of service. Those alternative plans would also have financial benefits. Due to decades of over-promising and under-saving, teacher pension plans today are under-funded by $500 billion, and rapidly rising pension costs have contributed to the stagnation of teacher salaries. These problems are unique to defined benefit pension plans, and these funding issues could be avoided if states transitioned to other types of retirement plans.

I’m sympathetic to these arguments, but I also realize that defined benefit pension plans will be with us for a while, and I’d rather states design their retirement plans to serve all of their workers as well as they possibly can. In the meantime, I hope this exercise leads more policymakers to question whether their state’s retirement plan meets the needs of all teachers, who they might be leaving out, and how those plans could be improved.

 

Chad Aldeman is a principal at Bellwether Education Partners

 

Assumptions

Baseline Defined Benefit (DB) Step 1 Step 2 Step 3 Step 4 Progressive DB
Starting Salary $40,000 $40,000 $40,000 $40,000 $40,000 $40,000
Salary growth rate 3% real 3% real 3% real 3% real 3% real 3% real
Employee contributions 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Employer contributions for benefits 4.5% 6.9% 8.5% 13% 16.4% 4.5%
Investment return assumption 7.5% 7.5% 7.5% 7.5% 7.5% 7.5%
Inflation assumption 3% 3% 3% 3% 3% 3%
Vesting period 5 years 5 years 5 years 5 years 5 years 1 year
Multiplier 2% 2.5% 3% 3% 4% 10%
Final Average Salary (FAS) Highest 3 years Highest 3 years Highest 3 years Highest 3 years Highest 3 years Highest 10 years
Benefit Cap 100% of FAS 100% of FAS 100% of FAS 100% of FAS 100% of FAS 80% of FAS
Normal retirement age 60 60 60 55 55 65
COLA 2% 2% 2% 2% 2% 2%

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Pension Fix Depends On Accurate Counting https://www.educationnext.org/pension-fix-depends-accurate-counting/ Thu, 14 Feb 2019 00:00:00 +0000 http://www.educationnext.org/pension-fix-depends-accurate-counting/ How should we measure teacher longevity?

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Not all teachers will last in the workforce as long as Patriots quarterback Tom Brady has played in the NFL.

The best way to measure a retirement plan’s adequacy is to look at how it treats all workers who come through the system.

This issue seems simple, but it is at the heart of the debate over teacher pensions. Last month, Nari Rhee and Leon F. Joyner Jr. released a report for the UC Berkeley Center for Labor Research and the National Institute on Retirement Security (NIRS) that makes a counter argument—that we should measure a retirement plan’s adequacy by how it treats its current workers. Their approach may appear seductive at first glance, but it turns out to be misleading once you dig into its implications.

Let’s start with the methodology, which underpins the entire argument. Rhee and Joyner gathered data on current teacher pension plan participants in six states, Connecticut, Colorado, Georgia, Kentucky, Missouri, and Texas, and then they applied each state’s actuarial assumptions to estimate how many teachers in those states would reach various retirement thresholds. Based on these calculations, they estimate that two-thirds of current teachers in these states will teach at least 20 years in the same state. They then argue that these findings make traditional pension plans a better choice for the majority of teachers.

Ok, sounds simple enough, right? The problem is that by using only a snapshot of the current active teacher workforce in these states as their starting point, they fail to account for the totality of teacher experiences.

Let me give a couple examples to illustrate why their approach is the wrong unit of measurement for tracking retirement security.

For years the education sector argued about graduation rates. Schools and states would report point-in-time dropout rates for any given year, but these artificially inflated any given student’s chance of graduating from high school, and many advocates and civil rights leaders were concerned about the total number of students who left high school without graduating between 9th and 12th grades. This was a long-running debate in the education sector, but ultimately policymakers decided the proper measurement was to look at how many incoming freshmen graduated four (or five or six) years later, because it gave a more accurate count of students and their chances for success.

This is the fundamental problem with Rhee and Joyner’s approach. They take a similar point-in-time approach by looking at all current teachers. Sure, some of them are new teachers in their early years on the job. But the current workforce also includes 15-, 20-, and 30-year veterans who have already persisted for many years. This matters in a field with high early-career turnover rates, which Rhee and Joyner acknowledge in another part of their paper. But Rhee and Joyner’s main analysis ignores anyone who has already left the teaching profession, and it is inherently flawed due to this “survivorship bias.”

This isn’t a theoretical problem. Consider Figure 6 from their report, pasted below. It purports to show the distribution of teachers in each state by when they’ll leave the teaching profession, and whether they’ll “vest” into their state’s pension plan or stay long enough to meet the state’s minimum retirement age. As context, in the median state it takes seven years for a teacher to vest. For simplicity’s sake, focus just on the bottom bar, the percentage of teachers Rhee and Joyner say will leave before vesting. Take Colorado, for example. In Colorado, Rhee and Joyner say that only 20 percent of teachers will leave before vesting, which is five years in Colorado.

But this result is impossible. According to the same official state projections that Rhee and Joyner apply to their sample, Colorado’s teacher pension plan assumes that 37 percent of males and 34 percent of females will leave in their first year, let alone make it to five years. Rhee and Joyner are trying to tell us that twice as many teachers will vest at 5 years than Colorado says will stay for one year.

I could repeat this same exercise for every state, with similar results, and it’s all due to the underlying sample that Rhee and Joyner start with. Looking only at the current teacher workforce has led them to impossible conclusions. Sure, Colorado’s pension plan looks ok for its current workers, but that’s only if we ignore all the people who have already left. It’s sort of like making inferences about tenure in the NFL by only looking at current rosters. For every statistical rarity like the 41-year-old Tom Brady, there are dozens and dozens of players who quietly shuffle in and out of the league.

Rhee and Joyner are certainly right to note that early-career workers have much higher rates of turnover than mid-career workers, and it’s reasonable to ask whether we should treat all workers the same in any retirement scheme. But they’ve taken that argument too far. The teaching profession is too large a group of American workers, and too important, to simply ignore all the ones who give five or ten or even 20 years of service and leave. Those teachers don’t do that well under current pension plan systems, and Rhee and Joyner don’t seem to have much sympathy for them.

As my colleagues and I discuss over at Teacherpensions.org all the time, there is plenty of room for well-intentioned people to disagree about the best remedies to our teacher retirement problems. And the choices facing policymakers are a lot more complicated than just pensions versus 401(k)-style plans. Those are important and lively debates. But it’s important that those conversations are underpinned by accurate analyses of the various dimensions of the issue. This most recent one is not.

Chad Aldeman is a principal at Bellwether Education Partners.

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Teacher Salaries, Benefits, and Incentives All Leading to Strike Talk in Denver https://www.educationnext.org/teacher-salaries-benefits-incentives-leading-strike-talk-denver/ Tue, 05 Feb 2019 00:00:00 +0000 http://www.educationnext.org/teacher-salaries-benefits-incentives-leading-strike-talk-denver/ Debate is focused on a pay-for-performance program but benefit costs loom in the background.

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Teachers in Denver, Colorado are on the brink of going out on strike. Given last year’s statewide demonstrations in Colorado, West Virginia, Arizona, and Kentucky, not to mention the recent teacher strike in Los Angeles, it might be tempting to think of Denver as just one more data point in a larger national trend of teacher activism. But Denver is different for a few reasons.

First, unlike the rest of the contry, teacher salaries in Denver have been going up. Denver teacher salaries have risen 4.1 percent a year over the last five years, which is a faster growth rate than its overall per pupil spending (see data on page 27 here). The district is now proposing a further 10 percent raise, and the union is requesting a raise of 12.5 percent. Those are much larger numbers than in Los Angeles, for example, where the union ultimately agreed to a 6 percent raise phased in over two years.

Second, as Rick Hess notes in an excellent piece for Forbes, the Denver debate is largely over a pay-for-performance program called ProComp that began in 2005. The district and union are not all that far apart on total spending, but the disagreement is largely about how that money is allocated and whether it should go toward base pay or incentives.

Still, if I were a Denver teacher, I would be upset about the district’s inability to control spiraling benefit costs. While Denver has seen revenue increases and has been able to translate a good portion of that into higher salaries, the increases to base salary pale in comparison to Denver’s spending on benefits. To show what this looks like, I created the graph below using data from the U.S. Census Bureau. As the graph shows, from 2001 to 2016 Denver increased current spending per pupil by 57 percent, and it increased spending on salaries and wages by 65 percent, but its spending on employee benefits soared by 232 percent. That is, Denver’s spending on employee benefits rose about four times faster than its spending on salaries and wages.

Part of this is due to changes in health care costs, but the state pension plan is also a big factor. Mandatory contribution rates to the Colorado teacher pension plan doubled between 2001 and 2016, and they’ve continued to rise since then.

In fact, in legislation passed late last spring, Colorado cut benefits for new hires and further increased employee and employer contribution rates. As I showed at the time, the net result is a dramatic decline in the value of Colorado teacher retirement benefits. The graph below shows the value of a teacher’s pension under the Public Employees Retirement Association (Colorado PERA) depending on hire date. Workers hired before 2011 were placed in a back-loaded plan that required them to stay 20 or 30 years before qualifying for a decent benefit (represented by the solid black line). But the state offers worse benefits to those hired between 2011 and 2020 (the gray line), and it will offer even worse benefits to teachers hired after 2020 (the red line).

To be clear, Denver as a school district has no control over the statewide pension plan. Those rules are set by the legislature and apply to all educators across the state. But Denver teachers are getting a particularly raw deal. Denver has a relatively mobile teacher population, meaning fewer of its teachers will stick around to reach the back-end peaks built into the state pension plan formulas. And given its fast-growing population, Denver will have a disproportionately large share of teachers hired into the new, worse benefit tiers.

These benefit issues may not get the same attention as the fight over base salaries, but Denver residents should be concerned about how their school district’s budget is being spent and how little control they have over this important part of it.

— Chad Aldeman

Chad Aldeman is a principal at Bellwether Education Partners.

This post originally appeared on TeacherPensions.org.

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Why Los Angeles Teachers May Strike https://www.educationnext.org/context-lausds-potential-teacher-strike/ Mon, 07 Jan 2019 00:00:00 +0000 http://www.educationnext.org/context-lausds-potential-teacher-strike/ From 2001 to 2016, the Los Angeles Unified School District increased overall spending by 55.5 percent, but employee benefit costs soared 138 percent.

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Barring a last-minute agreement, teachers in Los Angeles Unified School District (LAUSD) plan to go out on strike beginning Thursday. There are a number of factors driving the impasse, including fights over base salaries, class sizes, and charter schools, but one factor that’s getting less attention is how much the district is spending on benefits for its employees.

Consider the graph below, using data from the Census Bureau’s Public Education Finances reports. From 2001 to 2016, LAUSD increased overall spending by 55.5 percent, but its spending on salaries and wages increased just 24.4 percent. Meanwhile, employee benefit costs soared 138 percent.

LAUSD is an extreme example, but this situation is playing out across the country. More and more of our nation’s education spending is going toward benefit costs, due to significant increases in pension and healthcare costs.

Another way to slice the same data is to look at the percentage of our education budgets that are being spent on the salaries and wages of teachers who work in instructional roles. Again, the national trend is not positive, and LAUSD is no exception. In 2001, L.A. devoted 44 percent of its budget to teacher salaries and wages; by 2016, that figure had fallen to 33.5 percent.

As mentioned above, rising pension and healthcare costs are squeezing school districts’ discretionary budgets and taking away dollars that could otherwise go toward hiring more teachers or paying them more money. These trends are still accelerating. In California, for example, the state has been ratcheting up employee contribution rates toward the state pension plans, CalSTRS and CalPERS, and rates will continue to rise through at least 2021.

LAUSD has also created its own problems locally. At one point, the district promised free medical, dental, and vision coverage to all retirees with at least five years of service, and their spouses. It has gradually limited who is eligible for those benefits, but the district still doesn’t require any retiree contributions toward those health care benefits. This year alone, LAUSD will spend $314 million on those benefits, which is the equivalent of more than $500 per pupil or $12,500 per teacher. Those costs are project to rise significantly over time.

In fact, the long-term budget outlook in Los Angeles looks particularly depressing. As I wrote about last year, the district projects to spend more than half of its budget on healthcare and pension benefits by the 2031-32 school year:

None of these trends are positive, and in fact most of the cost increases will be used to pay for the unfunded promises of the past, not for any new benefits for current or future workers. As you follow the news of the pending teacher strike this week, consider how L.A. got in this situation and whether any of the solutions on the table will make a dent in these long-term trends.

— Chad Aldeman

Chad Aldeman is a principal at Bellwether Education Partners.

This post originally appeared on TeacherPensions.org.

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What Happened to Wisconsin’s Teacher Workforce After Act 10? Not Much https://www.educationnext.org/what-happened-wisconsins-teacher-workforce-act-10-not-much/ Thu, 15 Nov 2018 00:00:00 +0000 http://www.educationnext.org/what-happened-wisconsins-teacher-workforce-act-10-not-much/ Many predicted that the restrictions Act 10 placed on collective bargaining would devastate the teacher workforce in Wisconsin, but the more drastic predictions have not transpired.

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Over the summer, the Supreme Court ruled in the Janus v AFSCME case that public-sector unions can no longer collect “agency fees,” the mandatory fees that unions charged employees to cover the costs of collective bargaining. The court ruled that agency fees were an unconsitutional form of forced speech, since collective bargaining in itself is a political act. (For more on the details of the case, see this comprehensive explainer deck from my Bellwether colleagues.)

The conventional wisdom on the effects of Janus seems to go like this:

1: With the loss of agency fees, teachers unions will have fewer paying members and thus smaller budgets.

2: With smaller budgets, teachers unions will be less effective at lobbying for change on behalf of their members, and teachers will have lower salaries and worse working conditions.

3: Lower pay will harm the teacher workforce, through worse recruitment and higher turnover rates.

But what if these issues are not as directly related as theory might predict? My thinking on this question was challenged by an academic paper that came out a few months before the Janus case was decided. In that paper, political scientist Agustina Paglayan looked at the timing of when states adopted collective bargaining and how that related to changes in teacher salaries and overall education spending (see an Education Week write-up here, or read the full study here). Paglayan found that states with high education spending and high teacher salaries were more likely to become unionized. In fact, the notion that teachers unions caused teacher salaries to rise appeared to be backwards: Places that were already investing in public education and paying their teachers well were also likely to allow those teachers to unionize. Paglayan’s paper included state-by-state graphs showing that unionization often followed large increases in school spending and teacher salaries, not the other way around.

If we apply the lessons from Paglayan’s research, the Janus case may well weaken unions, but we should decouple that effect from predictions about changes in education spending or teacher salaries. The connection between teachers unions and the teacher workforce may not be as tight as the conventional wisdom might predict.

The recent history in Wisconsin presents a useful modern comparison. In 2011, Wisconsin Governor Scott Walker signed a controversial piece of legislation known as Act 10. The bill restricted collective bargaining to base wages, required annual recertification for bargaining unit representation, and raised teacher contribution rates to the state pension and health care systems. Many observers predicted these changes would devastate the teacher workforce in Wisconsin.

We already have some preliminary results, and Wisconsin teacher union membership and union revenues did indeed go down. There’s also been some preliminary research suggesting that more Wisconsin school districts are experimenting with differential pay, which may create a more uneven spread between winners and losers.

But the more drastic predictions about the demise of the Wisconsin teacher workforce have not transpired. Today, there are more educators working in Wisconsin schools (over a time when student enrollment actually dipped slightly), and average salaries have kept up with other states (although not inflation, see more below). After an initial surge of retirements when the law passed in 2011, things have returned to normal. Meanwhile, turnover rates, salary growth rates, median years of experience, age, and retirement rates all look pretty much in line with long-term trends. And regardless of who had won the governorship on November 7, school spending was likely to rise in the immediate future: Both Walker and his Democratic opponent, state schools superintendent Tony Evers, had proposed significantly more education spending.

To see how things are changing over time, I looked at the latest version of the Comprehensive Annual Financial Report (CAFR) of the Wisconsin Department of Employee Trust Funds (ETF). This report compiles results and assumptions about different types of public servants, including teachers, who receive benefits through the Wisconsin Retirement System (WRS). The report breaks out the results by broad categories. It lumps all educators including school support personnel into one “Teacher” category, but classroom teachers represent the bulk of the category, and the data are broadly illustrative about the people working in Wisconsin school districts. Here’s what the data show:

Leading up to 2011, Wisconsin was shedding public-sector jobs, especially in education. After Act 10 passed in 2011, Wisconsin was slow to rebuild its teacher workforce, but it has happened over time. Today, Wisconsin is back to about where it was in 2010. Meanwhile, K-12 student enrollment has fallen by about 0.5 percent over this same time period.

As we’ve written before, Act 10 did seem to lead to a large exodus of workers right when it passed. This surge may have led people to believe this was a new normal, but in subsequent years the number of workers retiring each year has returned back in line with its prior baseline. Contrary to what we might expect, this mass exodus of veteran teachers did not seem to harm student achievement. This is consistent with evidence from the retirement world, where early retirement programs that induce many veteran teachers to retire have not led to declines in student performance.

In fact, the teacher workforce in Wisconsin today looks pretty similar to what it looked like in the past. Since Act 10 passed in 2011, the average age of Wisconsin teachers has dropped from 43.5 to 43.3 years old. It hasn’t budged at all since 2013.

Similarly, the average years of experience has also not changed much, and it’s risen from 12.4 in 2011 to 12.6 years of experience today.

Average salaries show a similar trend. The graph below is in nominal dollars, so it presents a slightly rosier picture than what Wisconsin teachers might be feeling. In inflation-adjusted terms, Wisconsin teacher salaries are lower today than they were in previous decades. But you could have said the same thing at the end of 2010, before Act 10 passed. In real terms, average teacher salaries in Wisconsin were much higher in the late 1980s. Act 10 had nothing to do with this long-term decline.

The slide in average teacher salaries is also not unique to Wisconsin. In real terms, teacher salaries have been flat or declining all across the country, and the changes in Wisconsin in recent years put it in the middle of the pack on this metric. 

All of the measures we’ve looked at so far show how things have changed over time, but it’s also worth looking at how teachers compare to other types of public-sector workers in Wisconsin. According to the official WRS projections, teachers have faster salary growth rates than other types of public workers. (These growth rates are on top of inflation.) 

Again contrary to popular perception, public school employees in Wisconsin have comparable turnover rates as other public-sector workers, with the exception of a small group of protective service employees who do not receive Social Security. (In this context, “termination” means employees leaving the pension system. That is, teachers who transfer schools or districts are not counted in this statistic.)   

Wisconsin teachers also retire at younger ages than their public-sector peers (and much earlier than the typical worker in the private sector). According to this chart, the WRS assumes that 36 percent of male public school employees will retire when eligible at age 57, compared to 18 percent of similar general state employees. On a cumulative basis, that means very few Wisconsin teachers remain in the classoom into their 60s, and they have different retirement patterns than general state employees or university employees, despite them all being enrolled in the same retirement plan. 

Overall, Act 10 had a large effect on Wisconsin teachers unions but hardly any effect on Wisconsin teachers. That distinction is important, and as we look to interpret the effects of the Janus decision, the Wisconsin example should remind us to be careful to separate out the effects on unions from the effects on teachers.

-Chad Aldeman

Chad Aldeman is a principal at Bellwether Education Partners. 

This post originally appeared on teacherpensions.org

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Health Care for Life https://www.educationnext.org/health-care-for-life-will-teachers-post-retirement-benefits-break-bank/ Tue, 18 Sep 2018 00:00:00 +0000 http://www.educationnext.org/health-care-for-life-will-teachers-post-retirement-benefits-break-bank/ Will teachers' post-retirement benefits break the bank?

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At a recent school board meeting in Los Angeles, the budget director put up a slide with a dire warning. Los Angeles Unified, the second-largest school district in the country, is on pace to spend more than half of its annual budget on retirement and health-care costs by the year 2031. By then, it is projected to spend 22.4 percent of its budget on pensions and 28.4 on health-care benefits for current and former workers.

The cost of health care is rising rapidly in all parts of our economy, but the pressures in the public sector, and particularly in public education, are different. Like many school districts, where salaries are low compared to private-sector peers, Los Angeles Unified School District (LAUSD) has chosen to compensate by providing its teachers with generous health benefits. In fact, the district extends medical, dental, and vision coverage not just to current employees but also to retirees and their spouses, who do not pay premiums or deductibles and yet qualify for full benefits for life. So LAUSD’s projected health-care spending includes 38,000 former workers and spouses, each of whom is estimated to cost up to $291,000 during their retirement years.

LAUSD is an outlier in terms of how generous those benefits are, and the district has begun to roll back who is eligible to receive them over the past decade. But this illustrates a little-understood way public employees like teachers are increasingly diverging from their private-sector peers: they are much more likely to receive health-care benefits after they leave their jobs. Nationwide, the estimated liability for post-retirement health-care benefits for public employees is $692 billion.

Teacher retiree health care is perhaps the ultimate arcane issue in the education sector. There are no funders investing in solutions to this issue, there are few reliable sources of data, and until recently, states and districts did not even calculate how much they had promised in future benefits, let alone start saving to pay for those promises. However, over the past decade, new financial accounting rules have forced states and districts to start recognizing and publicly reporting those costs, which is likely to put even more downward pressure on teacher salaries and other school spending. These trends are contributing to broader teacher unrest, and were factors in recent teacher walkouts in states like Colorado, Kentucky, Oklahoma, and West Virginia.

The escalating costs are poised to raise the profile of these post-employment health benefits. And the ensuing debate is sure to raise broader questions about what districts owe their retirees and whether they can make good on the promises as written, or if there are reforms that could balance worker protections with responsible budgetary practices. Moreover, the problem with retirees’ health benefits extends beyond their cost or divergence from the private sector; there are also reasons to doubt whether these benefits help schools attract and retain high-quality workers. In this piece, I review the history and landscape of retiree health benefits, explain why those plans might not be having the desired effects on the teacher workforce, and explore options for reform.

Reckoning with retirement costs

The first retiree health-benefit plans started out in the 1940s as a way to attract and retain workers in both the private and public sectors, which competed with each other and offered similar health benefits. For decades, employers were able to offer retiree health benefits as part of employees’ compensation packages without fully accounting for their cost.

That began to change in the private sector in the mid-1980s, when new accounting rules forced companies to include the long-term liabilities of post-employment health-care benefits on their balance sheets. As workers aged into the plans and began collecting benefits, companies were required to properly account for the projected expense of future promises and make those liabilities public, rather than just reporting the annual costs of paying for the benefits that year. Companies quickly decided it made more sense to close the plans than to appear less profitable. The share of large and midsize companies offering retiree health benefits fell from 45 percent in 1988 to 24 percent in 2017, Bureau of Labor Statistics data show (see Figure 1). Smaller companies are even less likely to offer such benefits, and nationally, just 15 percent of private-sector workers have access to employer-provided retiree health benefits.

For public-sector workers like teachers, the numbers remain much higher. In 2017, 69 percent of public-school teachers were employed in states or districts that offer retiree health benefits to workers under age 65, and 61 percent of teachers worked for an employer that offers health benefits even after age 65, when all Americans become eligible for Medicare. However, a similar change in accounting rules for state and local agencies was adopted in 2008, forcing states and local governments to publicly report long-term obligations they had long ignored. The question is, what will states and districts do in response?

We may find clues based on the size of the liabilities. As a point of comparison, readers may be familiar with unfunded pension liabilities in the public sector. As of 2016, the gap between state pension systems’ funds and obligations had grown to $1.4 trillion nationwide, including about $500 billion for education workers. But those figures do not include the cost of retiree health care, and while we don’t have the data needed to determine a firm estimate, we can get a sense of the scope of the financial challenges ahead. According to the Pew Charitable Trusts, 35 states offer former public employees health benefits in retirement, and they’ve accumulated a total unfunded liability of $692 billion. Roughly one third of all public employees in the United States are teachers and other education workers, so it’s reasonable to estimate that unfunded health-care promises amount to about one third of the total liability, or about $231 billion just for teachers and other public-education employees. Some school districts, like LAUSD, offer their own benefits as well, either on top of the state plan or in lieu of one.

Precarious plans

While the unfunded promises for retiree health care are only half as large as they are for pensions in terms of total dollar amounts, the health benefits are in much worse shape in terms of the money states have saved for the future. Nationwide, public-sector pension plans are 65 percent funded, meaning that states have saved 65 cents for every dollar promised in future benefits. This is not good, and it’s the main reason pension contributions have skyrocketed in recent years, putting pressure on state budgets.

Health care for retirees is on even shakier ground. Until recent years, states were not required to calculate how much retirees’ health-care promises were worth, and few put anything aside to pay for them in the future. Today, 15 states, including large ones like Florida, New Jersey, and New York, have zero dollars set aside to pay for retiree health-care obligations. Nationwide, future projected health-care costs for retirees are 7 percent funded, with other large states posting even lower ratios: California has a funded ratio of 0.2 percent, Connecticut is at 1.0, Pennsylvania at 1.6, and Texas is at 1.2 percent (see Figure 2). Put simply, there is no money saved to cover 93 percent of the anticipated costs for retirees’ health-care benefits.

That may make these benefits especially vulnerable to budget pressure. Unlike pensions, which are covered by legal provisions that restrict the changes that states can make for existing workers and retirees, retiree health benefits have no such protections. They could be on any budget chopping block at any time. Pensions may be where the bulk of the long-term costs pressures are, but policymakers may prefer reforming retiree health benefits for the more immediate cost savings.

These factors create a precarious situation, and the most obvious solutions are to adopt steep benefit cuts or increase contributions. States and districts have been busy in recent years restricting eligibility only to very long-term employees, and it’s likely this trend will accelerate. If states also step up required contributions, that will lower take-home pay for all teachers. Combined, these two trends would require all teachers to pay for a benefit few of them will qualify for once they reach retirement age.

Rather than going down this path, state leaders should figure out compromise solutions now that will balance rising cost pressures with protections for workers. But before turning to potential solutions, it’s also worth considering how the plans affect teacher decisions around retention and retirement.

Limited role in retention

Although retiree health benefits have historically been justified on the grounds of boosting teacher recruitment and retention, there are reasons to doubt how effective they are at accomplishing those goals. To my knowledge, there have been no studies examining whether post-employment health-care benefits affect the recruitment or early-career retention of teachers. But the research base on pensions is illustrative. In a recent paper, Matthew Kraft, Eric Brunner, Shaun Dougherty, and David Schwegman did not find any evidence that increases in employee contribution rates toward pension plans harmed teacher recruitment efforts. That is, incoming teachers either didn’t know about the cost increases, or the increases weren’t sufficient to change teacher behavior.

My hunch is that new teachers are similarly unaware of how retiree health benefits work. When my colleague Kelly Robson and I looked at state pension-plan assumptions on teacher turnover, we found no state that assumes its early-career teachers will change their behavior in order to qualify for a pension benefit (see “Why Most Teachers Get a Bad Deal on Pensions” at www.educationnext.org). Other studies, such as one looking at a large benefit change to the pension plan in the St. Louis Public Schools, have found that pension plans can help retain late-career workers. However, only a small fraction of teachers remain on the job for that long, and after they reach the maximum years of service and benefit level, pension plans effectively push them into early retirement.

Retiree health-care plans are likely to have similar null effects on teacher recruitment and retention, especially at the front end of teachers’ careers. What about at the back end? A study by Maria D. Fitzpatrick found that the guarantee of post-employment health-care benefits helped push out older teachers in Illinois. She concluded, “The median older worker in [Illinois Public Schools] retires two years earlier than they otherwise would have because of the availability of retiree health insurance.” In other words, retiree health plans push experienced, veteran teachers and principals out of schools and districts and into retirement.

If the plans have not historically boosted teacher retention, they’ll do an even worse job of that going forward. That’s because states and local governments are responding to cost pressures by limiting who is eligible for benefits. For example, in years past, New York City offered city workers health benefits in retirement if they had five or more years of service. But that term was changed to 10 years for workers hired after 2000, and 15 years for workers hired after 2009. LAUSD has seven different tiers of retiree health benefits, depending on when the employee entered the district and when he or she retires. Each tier is more restrictive than the one that came before it, and the minimum service requirement has shot up from 5 to 25 years for full-time employees hired after 2009. In these cities, fewer and fewer workers will qualify for retiree health benefits, even as the city is paying higher and higher shares of its budget toward the program.

States have enacted similarly restrictive policies on who is eligible for retiree health benefits, with the result that only long-term veterans will qualify. A review of state pension-plan assumptions shows just how small this group is projected to be. For example, New Jersey offers teachers who serve for at least 25 years post-employment health-care benefits, but according to the state pension-plan’s assumptions on teacher turnover, most teachers won’t make it that far. Similarly, a young teacher in Texas would have to serve for 30 years before qualifying for the state’s post-employment health-care benefit, but the state’s pension projections estimate that only one in five new teachers will qualify. Meanwhile, all Texas teachers have to pay 0.65 percent of their own salaries toward retiree health-care benefits, their district employers contribute another 0.75 percent, and the state chips in 1.25 percent.

These plans are costing all teachers money, but they are becoming so limited that they reach only a small fraction of the workforce. That puts states in an uncomfortable position. States are implicitly acknowledging that the plans won’t act as a retention incentive for the majority of workers while they preserve extra benefits for workers with the most stable work histories. As the plans’ costs rise, they have become even less of a retention incentive and less of a protection to workers who might truly need the coverage.

A potential federal fix

Even if current retiree health-benefit plans are not an effective tool to shape the teacher workforce, policymakers might still want to ensure that former teachers in their 50s and 60s have access to health care. There is a range of options for policymakers looking to balance rising costs with the desire to provide adequate health benefits to a vulnerable group of retirees.

At one end, employers could just buck up and make the necessary payments. Or, they could keep the basic benefit structures intact and impose stricter limits on who is eligible to receive retiree health benefits. This approach might be preferable to current beneficiaries, but it follows an unsustainable trajectory. At some point, a generation of teachers is likely to balk at paying for a benefit that is no longer available to them, or available only to a few long-serving members of their cohort. Taxpayers might also balk at spending more on education and seeing a smaller and smaller portion of their investment actually make it into classrooms.

At the other end of the spectrum, some policymakers might be tempted to end their programs altogether. North Carolina, for example, recently announced it would not offer retiree health benefits to state workers who begin their employment after January 2021. (This does not affect teachers, who are enrolled in a separate plan.) Other states may be tempted to follow suit. Why, after all, should public-sector workers be given a benefit that most private-sector workers don’t have? And why should the public offer a benefit that systematically encourages employees to retire at relatively young ages?

The North Carolina model may sound draconian at first, but it’s worth a second look, mainly due to Obamacare. The federal Affordable Care Act provides subsidies on a sliding scale to individuals to purchase health insurance, regardless of age; in 2018, a two-member household earning less than $65,840, or 400 percent of the federal poverty level, would qualify for assistance. That’s more than the average and even the median teacher pension in most states as of 2016 (the most recent year with data available). Assuming no other sources of income, many former teachers could qualify for federal subsidies that would cover at least some costs of a health-care plan.

This move would effectively shift retiree health-care liabilities to federal taxpayers, but it might ultimately be more efficient to tie benefits to income and need rather than years of service. Moving former state and local government employees onto the Obamacare exchanges could also help stabilize private insurance markets by providing a new source of enrollees.

Similarly, the Obamacare exchanges are designed to be a bridge to Medicare, but many states and districts still provide benefits beyond that point. It seems reasonable to limit future benefits to retirees under age 65, who have not yet qualified for Medicare. Medicare offers a reasonable floor of benefits open to all, and there’s little public purpose accomplished by subsidizing benefits beyond that. Instead, employers could sponsor health savings accounts for workers who have the means and want to save on their own for additional medical expenses on top of Medicare.

Other than federal taxpayers, the main losers from this arrangement would be medium- and higher-income retirees who currently qualify for retiree health benefits. States could choose to offer additional contributions for those workers who wouldn’t qualify for federal subsidies because their pensions were too large or because they had other sources of income. But this would not be the best use of limited resources. Ultimately, policymakers should question whether it’s a good public investment to pay for the health care of former workers who already have generous incomes, either from their government pensions or other sources.

For places that don’t have Obamacare exchanges or don’t want to use them for this purpose, state and district leaders should still try to focus their resources on those who need it most. This differs from the current path, in which states and districts are looking to restrict eligibility for the same benefits rather than changing the underlying benefit itself. Instead, they could shift their coverage offerings from comprehensive “Cadillac” plans to more modest “catastrophic” plans, which could be extended further to protect more families from unexpectedly high health-care burdens.

Lessons at the state level

There are 35 states that offer post-employment health coverage to teachers, following three basic models: providing access to group plans at the retiree’s expense, covering a fixed percentage of retiree health-care costs, or contributing a fixed dollar amount toward the costs.

In the first model, states and districts play the role of health care provider rather than health care payer. Five states do this, providing retirees access to health insurance plans but no employer contribution toward those benefits. In these states, retirees can purchase a dedicated health-insurance plan and get the benefit of group pricing, but they must pay their own premiums.

This model looks similar to other policies that already exist to protect individuals who are out of work. Through the federal continuation health-coverage program, COBRA, the U.S. government requires employers to grant former employees access to their same health-care plan for up to 18 months post-employment, so long as the former employees pay the full cost of monthly premiums and administrative fees out of pocket. Many employees already use COBRA as a bridge from employment to Medicare, and states could simply extend COBRA coverage for former state and local government employees until they reach age 65. There would be minimal costs to a state that pursued this route—again, they would not be paying for any retiree’s health care—and though COBRA may be an expensive option for retirees, it would at least give them high-quality options beyond the private market.

For states that don’t want to rethink their coverage provisions, they should at least rethink their payment options. They may be forced to do so anyway. Some 23 states contribute a fixed percentage of retirees’ health-care costs each year, which shields employees from the full costs of the plans and leaves the state on the hook to keep up with the bulk of any increases. Teachers might see their own costs go up as well, but they rarely see what their state or employer is contributing. The states that have chosen to make fixed-percentage payments have accrued higher liabilities than those that contribute a fixed-dollar amount, and the only immediate recourse is to shift a larger percentage of the costs onto current workers (see Figure 3). That is already happening in some places—the recent teacher walkout in West Virginia was largely driven by this scenario—and similar budget pressures may encourage other states to follow suit.

Another option would be to follow the seven states that contribute based on a fixed-dollar amount, which effectively caps the state’s future liabilities. Much like the shift in retirement toward defined-contribution plans, this move would place a higher burden on retirees. But it could potentially help control broader health-care costs over the long term if the end user, workers, have more financial stake in their own health care. At the very least, it could give workers a greater appreciation for how much their health care actually costs and create demand for broader cost reductions.

The latest actuarial report from Los Angeles highlights the urgency of putting one of these strategies in place. LAUSD is projected to make retiree health-benefit payments totaling $306 million this year. Those numbers are projected to double in the next nine years. With a current enrollment of 620,000 students and 25,000 teachers, that means the district already is spending about $493 per pupil and $12,221 per teacher to provide former employees, their spouses, and dependents with free medical, dental, and vision coverage. As the district faces a potential teacher strike this fall, these costs—and the unfunded promises that created them—loom large in the background.

None of the options presented here will be politically popular, but cost pressures will increasingly force states and local school districts to think differently about retiree health benefits. For too long, employers were able to promote the benefits without recognizing their long-term costs. That reckoning is coming, and there are better and worse ways to tackle it.

Chad Aldeman is a principal at Bellwether Education Partners and the editor of TeacherPensions.org.

This article appeared in the Winter 2019 issue of Education Next. Suggested citation format:

Aldeman, C. (2019). Health Care For Life: Will teachers’ post-retirement benefits break the bank? Education Next, 19(1), 28-35.

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