Teacher Pension Systems and Charter Schools · The district’s pension obligations, Sullivan said...

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How Well Do Teacher Pension Plans Serve Charter and Urban Teachers?

Cory Koedel Shawn Ni Michael Podgursky P. Brett Xiang Department of Economics University of Missouri - Columbia

Prepared for the 7th Annual CALDER conference. Washington DC , Jan. 23-24, 2014 Views reflect those of the researchers. The usual disclaimers apply.

St. Louis Superintendent Kelvin Adams said rising pension costs are part of the overall budget constraints forcing the closure of two schools next fall — Sherman Elementary and L’Ouverture Middle. The district’s pension obligations, Sullivan said at the forum, “cannot be used to educate students. It cannot be used to pay teachers. The money cannot go into the classroom where many think it should be invested.”

Note: Employer ARC for PSRSSTL. 2010 = 8.27%, 2014 = 16.5%

Some charter school leaders point out that most of their staffs will never even draw a pension. Teachers at charter schools tend to be younger, work for less pay, and switch jobs at a much faster rate than those at St. Louis Public Schools. Based on historical data, half of teachers at charter schools will leave after one year, according to the pension system’s annual report. Just one out of three will remain in the system after three years. Becoming vested requires five years of employment.

So Principal Lynne Glickert began recruiting a candidate from St. Louis County, a teacher whom she calls “amazing.” But the teacher turned the job down. The reason: To work at Grand Center Arts Academy, a charter school, she’d have to switch to the city teachers’ pension system. “I wish they had a choice,” said Glickert, who has run into this predicament before. “For her, it’s about the retirement.”

Overview

• National context • Missouri Institutional Context • Incentives in DB Plans • Benefits and Costs for Charter Schools versus

Traditional Schools • Conclusions

Note: excludes retiree health insurance & Employee contributions

Source: Costrell and Podgursky (2009), updated at http://www.uaedreform.org/downloads/2013/12/quarterly-employer-contribution-chart-update.pdf

Missouri Situation

• 3 Systems and No Reciprocity • Kansas City PSRS (3% of MO teachers)

– Teachers and staff – In Social Security

• State PSRS (93% of MO teachers) – Teachers, not in SS

• STL PSRS (4% of MO teachers) – Teachers and staff, in SS

Year 2002 2007 2012

KC Traditional 2,213 2,118 1,125 KC Charter 353 445 771 KC Total 2,566 2,563 1,896 Index 100.0 99.9 73.9 Charter % 13.8% 17.4% 40.7%

STL Traditional 3,155 2,502 1,934 STL Charter 115 282 835 STL Total 3,270 2,784 2,769 Index 100.0 85.1 84.7 Charter % 3.5% 10.1% 30.2%

PSRS 61,008 64,218 64,124 Index 100.0 105.3 105.1

Teacher Employment Trends

Year 2002 2007 2012

KC Traditional 2,213 2,118 1,125 KC Charter 353 445 771 KC Total 2,566 2,563 1,896 Index 100.0 99.9 73.9 Charter % 13.8% 17.4% 40.7%

STL Traditional 3,155 2,502 1,934 STL Charter 115 282 835 STL Total 3,270 2,784 2,769 Index 100.0 85.1 84.7 Charter % 3.5% 10.1% 30.2%

PSRS 61,008 64,218 64,124 Index 100.0 105.3 105.1

Teacher Employment Trends

16.5% 14.5%

14.5% 12.4%

KC STL PSRS

Social Security

Teacher

Employer

2014 Retirement Pension Contribution Rate in Three Missouri Teacher Pensions Plans

10.00%

15.00%

20.00%

25.00%

30.00%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Retirement Pension Costs as a Percentage of Salary for PSRS, Saint Louis, and Kansas City

• Significant enhancements to all three plans during 1990’s.

• These contribute to legacy costs (UAL) – KC: 1993 formula multiplier = 1.5%

• 1999 = 2.0%

– STL: 1999: formula multiplier raised from 1.25% to 2%

– All Retroactive

Annual Pension = S x FAS x r(S,A) S = service years FAS = final average salary r(S,A) = replacement factor

Typical Final Average Salary DB teacher pension

Age and /or service criteria for regular retirement

Note: No link to contributions

KC Missouri PSRS STL

Number of Teachers 1896 64124 2778

Share of MO Teachers (%) 2.7% 93.4% 3.9%

In Social Security Yes No Yes

Vesting (years) 5 5 0

Retirement Eligibility 60/5, Rule of 75 60/5, any/30, Rule of 80 65/5, Rule of 85

Contribution Rates Teacher 7.5%, District 7.5%

Teacher 14.5%, District 14.5% Teacher 5.0%, District 11.1%

Multiplier 2.00% 2.5% 1-30 yrs, 1.55% 31+ yrs 2.00%

Early Retirement 55/5 55/5, any/25 60/5

COLA ad hoc CPI, compounded, up to 80% ad hoc

Cash Annuity

Pension Wealth

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

24 29 34 39 44 49 54 59 64 69 74

Pension Wealth Accrual for Representative Kansas City Teacher in all Three Missouri Systems

Kansas City

St. Louis

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

24 29 34 39 44 49 54 59 64 69 74

KansasCity

St. Louis

100000

200000

300000

400000

500000

600000

700000

800000

900000

1000000

24 29 34 39 44 49 54 59 64 69 74

KansasCity

St. Louis

1993 2002 2007 Mean Experience

27.1 27.6 26.4

Median Experience

Mean Age 58.7 55.7 56.5 Median Age 59 55 56

N 875 1612 1648

Experience and Age of Teacher Retirees: 1993, 2002, and 2007 (Missouri )

Trend toward later retirement in other sectors and other industrial nations: Gendell ( 2008) Burtless, (2008)

Source: Ni, Podgursky, Ehlert, 2009

• What is the probability a new teacher makes it to the top of the hill?

• In STL and KC (charter or non-charter) – very low

STL and KC

100.0%

0 1 2 3 4 5 6 7 8Years Experience

Plan Retention of New Teacher Hires: Cohorts of New Teachers Hired Fall 2005 - Fall 2012

PSRSKC CharterSTL CharterSTL TraditionalKC Traditional

100.0%

STL Charter

STL Traditional

100.0%

KC Charter

KC Traditional

STL and KC

100.0%

PSRSKC CharterSTL CharterSTL TraditionalKC Traditional

100.0%

Retention of New Teacher Hires: Cohorts of New Teachers Hired Fall 2005 - Fall 2012

KC Charter

STL Charter

STL Traditional

KC Traditional

RG and Normandy

RG & Normandy

100.0%

100000

200000

300000

400000

500000

600000

700000

800000

24 29 34 39 44 49 54 59 64

Pension Wealth Accrual for Representative Kansas City Teacher and Estimated Probably of Retention to Given Age

Kansas CityPension Wealth

KC CharterRetention

KC Trad.Retention Re

100.0%

100000

200000

300000

400000

500000

600000

700000

24 29 34 39 44 49 54 59 64

Pension Wealth Accrual for Representative Saint Louis Teacher and Estimated Probably of Retention to Given Age

Saint Louis Pension Wealth

STL Charter Retention

STL Trad. Retention Rete

$54,316 $53,416

$318,061

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Kansas City Traditional Teacher Kansas City Charter School Teacher Hypothetical PSRS Teacher

lth in

Expected Pension Wealth in Kansas City, Discounted to Age 55 for Teachers with Different Expected Survival Rates

Expected Pension Wealth in Saint Louis, Discounted to Age 55 for Teachers with Different Expected Survival Probabilities

0 1 2 3 4 5 6 7 8

Estimated Survival Probabilities for New Teachers: 2004-05 SASS Teacher Follow Up Survey

Low Poverty

High Poverty

Charter School

Conclusion • More general research agenda. Do results

generalize to: – Charters in other states? – Cohorts of new urban teachers in other states? – Other school reform strategies?

• TFA • High quality alternate route programs (TNTP)

• Retirement security: DB/DC/CB

Teacher Pension Systems and Charter Schools · The district’s pension obligations, Sullivan said...

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