Wednesday, January 12, 2011

Why Teacher Pensions Don't Work

Joel Klein with a spot-on WSJ op ed about how teacher pensions will bankrupt us – and, perversely, hurt teacher quality:

As one legislator recently told me, "When budgets are tight, as they often are, we simply kick the can down the road by underfunding pension obligations." But as with Madoff, inevitably a day of reckoning arrives. For many states and municipalities, that day is now.

But this time it won't be private investors who get hurt. Instead, children currently in our schools, as well as future students, will be high among those paying the price. To cover the underfunded pension obligations to teachers and other public employees, cities and states have little choice but to divert money from what would otherwise be their operating budgets. And since schools make up a big part of those operating budgets, education will get significantly shortchanged as we make up for past underfunding.

This problem won't go away soon. There are lots of current retirees who must be paid, lots of people now working who have earned some part of their pensions, and, in many states, it is legally dubious whether current workers can have their pensions adjusted even prospectively. Consequently, no matter how you slice it, today's and tomorrow's students will long be subsidizing retired teachers who never taught them.

You would think that such a costly program, even if underfunded, would at least make sense. But while defined-benefit pensions sound good in theory—retirees should have security for their later years—they actually create incentives that impede hiring and keeping the best teachers.


Why Teacher Pensions Don't Work

Defined-benefit systems aren't merely Ponzi schemes. They discourage talented teachers who would prefer front-loaded compensation.


 Subscribe in a reader