U.S. public school districts pay a far larger premium for teacher experience than is typically acknowledged: the relationship between a teacher’s experience and take-home salary is widely reported; the relationship between a teacher’s experience and pension—another important element of total compensation—is not. Current compensation practices persist despite a wide body of research demonstrating that quality differences between teachers plateau after five to seven years.
This paper calculates true total compensation, including salary and pension, for teachers at varying years of experience in the ten largest U.S. public school districts: New York City, the largest, followed by Los Angeles, Chicago, Dade County (FL), Clark County (NV), Broward County (FL), Houston, Hillsborough County (FL), Hawaii, and Philadelphia. It finds that these districts’ “final-average-salary-defined-benefit” (FAS-DB) pension plans backload retirement compensation in a way that substantially increases the total compensation premium paid to highly experienced teachers who remain in the same school district their entire careers.
The paper then models an alternative “cash-balance” (CB) pension plan, where teachers more smoothly accrue pension benefits across their careers; for the aforementioned school districts, the paper calculates changes to the teacher-experience premium if a district switched from its current heavily backloaded (FAS-DB) plan to a smooth-accrual (CB) plan of equivalent value—and thus, of equal cost to taxpayers. It finds that transitioning to the latter would substantially reduce the teacher-experience premium without reducing a teacher’s total expected career compensation. At present, the true value of total compensation for most U.S. public school teachers is poorly understood. It is also poorly aligned with teacher performance: the compensation gap between a teacher with, say, 35 years of experience and one with ten years is far greater than the gap in their teaching abilities. Smooth-accrual plans, the paper concludes, better align teacher compensation with teacher quality by raising compensation for teachers in their early years—a time when teachers improve most dramatically.