Dollar Down & Dollar When you get me

Dollar Down and a Dollar when you get me

Teaching has never been a highly paid profession.   But the benefits have usually been great.  Health care is heavily subsidized by the district.   Retirement is one of the few fixed payment retirement plans left.  But all might not be well in Loveland.

First of all, teachers, like everyone else, are living longer.  That means school districts are paying longer.  In some states, teachers are outliving the retirement funds that have been built up.  Districts are using the funds from new teachers to fund the retirement payouts for older teachers and also trying to figure out ways to cut benefits so there will be funds to pay the new teachers when they get older.

Now there is a new issue on the horizon.   In order to increase incoming funds to pay today’s older teachers and, hopefully, secure funds for the new teachers when they get to retirement, states and school districts have been increasing the amount of money that young teachers contribute to the plan.

The long-term benefit of a defined benefits retirement plan is that eventually the teachers will use up their contributions and start receiving additional money provided by either the state or the younger folk coming behind them.  In order for this all to work as planned, teachers need to stay on the job at least 25 years.   That appears to be the tipping point at which teachers will collect their contributions and then continue to receive the fixed benefit and begin to tap taxpayers’ money.  The fact is that teachers in more than half of the school districts must wait 25 years before their retirement benefit is worth more than they invested.  However, many teachers may never see this benefit since 72% of current teachers are leaving the profession before even 20 years in the field. 

One solution to this situation is to move from a defined benefits program to a 403(b) retirement plan managed by the staff member with contributions from the school district.  As with all things in life, there are plusses and minuses to this approach.  The plusses are that the money in the investment account belongs to the teacher and is invested tax-free.  Another benefit is that the contribution from the school district is up front and becomes part of that teacher owned investment account.  The downside is the down slide.   Individual investment accounts are not a fixed benefit.  So it is possible that the teacher can lose money.  This scenario is not likely over the long haul but teachers are not known to be risk-takers. 

There is a shortage of teachers in our schools now.  Partly it is the fallout from all the non-teaching demands put on teachers by standardized testing.  And partly it is the fallout from women who make up the majority of teachers, being able to have many more professional options.  The fixed benefit retirement plan has been a big recruiting tool.  

Now the budget reality is hitting up against the recruiting reality.   Maybe the answer is to recruit more risk-taking teachers.  That could benefit instruction as well.