Teachers love their pensions. A generous monthly check at the end of one’s career helps make the important, and sometimes underappreciated, profession worthwhile.
I wonder if teachers in Missouri’s lower-paying rural districts realize, though, that their pension contributions help subsidize the retirements of their better-paid counterparts in districts like Rockwood and Clayton.
That’s the finding of new research by James Shuls, assistant professor of educational leadership at the University of Missouri-St. Louis. The inequities occur because the Missouri Public School Retirement System bases pensions on a teacher’s last three years of salary, and because some districts grant much steeper raises over the course of a career.
The subsidy effect isn’t just the result of differences in pay, Shuls notes, and it isn’t unique to teachers.
“Any pension system that’s designed in this way is going to have a similar problem when you have people on different earning trajectories,” he said.
“The poorer school district gives much smaller raises over time,” Shuls explained. “They have a relatively flat salary schedule.”
Well-funded districts are more generous with their experienced teachers. A suburban teacher’s pay can easily double over a 30-year career, while a typical rural teacher sees much smaller raises.
All teachers contribute 14.5 percent of pay to the pension fund each year, and school districts kick in a similar amount. Because the pension is based on those crucial last three years — rather than a careerlong average — the teacher who got bigger raises realizes a much greater return on those contributions.
The effect is easiest to see when teachers become administrators and make six-figure salaries. When a former Wentzville superintendent became acting head of the better-paying Rockwood district in 2013, the Post-Dispatch reported that the one-year job would raise his annual pension by $20,000.
The career educator’s previous contributions weren’t enough to pay for that extra pension, but the money came from somewhere. That somewhere would be from everyone else who paid into the system.
If pensions were based on earnings over a 30-year career, rather than just the last three, Shuls calculates that the typical teacher’s pension in Belton, south of Kansas City, would rise by $4,300 a year. A typical Rockwood pension would fall by $11,500.
Half the students in Belton, but only 15 percent in Rockwood, qualify for free or reduced-price lunches. Teachers and taxpayers in poorer districts are subsidizing benefits in the wealthier corners of the state, many of which are in the St. Louis area.
Even using the last five years of salary, rather than three, to calculate benefits would eliminate much of the subsidy, Shuls says.
Poorer districts’ lack of resources means they are always going to struggle with retention, but the pension system’s structure makes that problem worse. It gives veteran teachers a strong incentive to jump to a better-paying district for the final years of their career.
Shuls’ latest study will appear this spring in the Journal of Education Finance. He has written about other issues with Missouri’s teacher pensions, including their growing cost and the risk they pose for taxpayers. He favors replacing public pensions with a defined-contribution plan, similar to a 401(k).