Outdated retirement benefits could be contributing to public employee hiring issues

Teacher recruitment and retention issues are on many state legislators’ minds as they start looking to the 2022 state legislative season. In Mississippi, for example, public school districts are struggling to recruit new educators, according to recent testimony given by the state’s Department of Education during a Senate Education Committee meeting. Similarly, a 40% spike in educator retirements in New Mexico during the COVID-19 pandemic has the state’s Legislative Education Study Committee searching for answers for their teacher shortage. And in Louisiana, the state auditor reported that a large portion of the state’s school funding money is now going toward paying for retirement benefits rather than today’s students.

High teacher turnover issues have plagued a number of states for many years, but the pandemic has some school districts especially concerned about public service being less attractive to highly-skilled STEM and special education professionals in particular. The COVID-19 pandemic continues to change classroom dynamics and the personal health priorities of employees and is certainly contributing heavily to the hiring issues facing these states. But an outdated approach to providing public pension retirement benefits could also be playing a role in the struggle of hiring public employees.

To be clear, there is nothing fundamentally wrong with states offering a defined benefit pension plan to public workers, especially when the plan is properly funded and well-governed. But, as state leaders continue to explore workforce issues, it is becoming clear that many younger workers especially, be they educators or other state and local government employees, are not all interested in the one-size-fits-all retirement benefit.

In theory, the one-size-fits-all pension approach creates an environment where public educators and employees take lower pay over their entire 20-30 year careers in exchange for a predetermined and guaranteed pension check they can count on each month in retirement. Sometimes this check is a supplement to their Social Security benefit, other times employees have forgone contributing to Social Security and receive their pension check in lieu of a Social Security benefit.

The guaranteed pension check looms over every career opportunity that comes across a public employee or educator’s path. Most defined benefit systems currently being offered threaten to not only take away that guaranteed check but also take away the employer’s contribution toward an employee’s retirement savings if the worker leaves public employment before a set date. Most states require between 5 and 10 years to vest in the public pension system. The same dynamic leads some employees to leave their jobs immediately after becoming eligible to receive their full pension benefits, draining institutional knowledge from schools and other public sector jobs.

According to data reported by the New Mexico Educational Retirement Board (ERB), over two-thirds of newly hired educators will likely leave employment within five years or before initially vesting in their predefined retirement benefits. Data from the Teachers Retirement System of Louisiana shows less of a drop, with only about half leaving within five years. However, the same data show that Louisiana’s newly hired educators have only a 15% probability of staying in public education long enough to achieve a full, unreduced pension benefit.

These retention numbers are not unique. Of the public pension plans studied by the Pension Integrity Project at Reason Foundation, most public pension systems lose over half of all their new hires within 5 years. Generally, less than 20% of all new hires today will work with a public employer long enough to earn a full, preset pension check. If a system is what it does then most public pension systems that only offer a defined benefit pension plan are what they produce—a coercive and aristocratic benefit that garnishes the already limited compensation of new, shorter-term workers. In far too many cases, these public pension plans are also underfunded, saddling future generations of taxpayers with massive debt obligations.

Simply arguing that a defined benefit helps recruit and keep employees ignores the fact that each person who chooses to work for a public entity is unique and would be better served with more retirement options. Bottom-line, the one-size-fits-all defined benefit pension systems offered to most educators and public workers around the country can make working in the public sector much less attractive than private alternatives.