Better Pay, Fairer Pensions: Reforming Teacher Compensation

States across the nation have recently turned considerable attention to reforming retirement programs for public school teachers. Such efforts have been spurred by the widely recognized need to address the crisis of unfunded liabilities and the escalating annual payments that states must make to their teacher pension systems. But there is another compelling reason to consider reforming these systems: They work poorly for many teachers, particularly those who remain in the profession for less than the 30 years that is often required to become eligible for the maximum payout.

From our analysis of compensation in the nation’s 10 largest school districts, we find that two simple reforms—neither of which would increase spending—would allow school districts to:

• Raise teacher salaries, in some cases substantially;
• Give teachers more retirement security than they now have;
• Make teaching a more attractive option for people who are unsure that they will work for decades in the same school district; and
• Offer teachers more control over when they stop working.

What changes would allow schools to make teaching more attractive in these ways?

First, districts should jettison their current approach to retirement benefits, in which teachers accrue relatively meager benefits through much of their careers, and then abruptly become eligible for much more as they near retirement age. In its place, districts should adopt retirement systems where benefits accrue smoothly, year after year, without sudden, arbitrary jumps late in a teacher’s working life. This would allow talented people to teach for part of their career, or teach in more than one district, without harming their retirement security. It would also end an unfair practice that places the majority of teachers on an insecure retirement savings path in order to support more generous pensions for the minority who work a full career in one system.

Second, districts should increase the amount of teacher compensation that is paid directly as salary, and reduce the amount of compensation that is devoted to retirement benefits in order to match the norm for similarly situated workers in the private sector. This reform would substantially increase teacher take-home pay in some school systems, while having only a marginal effect in others.

Our paper models the effects these reforms would have on teacher compensation in the nation’s 10 largest school districts. We conclude that these compensation changes would help districts offer a more attractive compensation package to most teachers likely having a positive effect on teacher quality and student achievement, without the need for higher taxes or reduced services.

READ FULL REPORT