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Missouri Teacher Pension Systems and Charter Schools

Missouri Teacher Pension Systems and Charter Schools. Michael Podgursky Cory Koedel Shawn Ni Department of Economics University of Missouri - Columbia. Prepared for the Missouri Public Charter Association Annual Conference. October,

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Missouri Teacher Pension Systems and Charter Schools

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  1. Missouri Teacher Pension Systems and Charter Schools Michael Podgursky Cory Koedel Shawn Ni Department of Economics University of Missouri - Columbia Prepared for the Missouri Public Charter Association Annual Conference. October, 2-4, 2013. Views reflect those of the researchers. The authors thank Brett Liu for Excellent research assistance. The usual disclaimers apply.

  2. 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%

  3. 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.” 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.

  4. Overview • National context • Missouri Institutional Context • Incentives in DB Plans • Benefits and Costs for Charter Schools versus Traditional Schools • Options for Reform • Conclusions

  5. Note: excludes retiree health insurance & Employee contributions Source: http://www.uark.edu/ua/der/People/Costrell/Employer_Contributions_Update.pdf

  6. 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

  7. Retirement Pension Contribution Rate in Three Missouri Teacher Pensions Plans

  8. What are effects on teacher staffing and quality? • What are incentive effects over life cycle? • Is this the best policy for charter schools or urban schools generally?

  9. Typical Final Average SalaryDB teacher pension Annual Pension = S x FAS x r(S,A) S = service years FAS = final average salary r(S,A) = replacement factor Age and /or service criteria for regular retirement Note: No link to contributions

  10. Significant enhancements to all three plans during 1990’s. • These contribute to legacy costs (UAL)

  11. Pull

  12. Push

  13. Who makes it to the top of the hill? • In STL and KC relatively few new teachers

  14. PSRS STL and KC

  15. PSRS STL

  16. PSRS KC

  17. Mobility Costs • Backloading means crossing pension plans (PSRS to KC or vise versa) produces huge losses in pension wealth • Particular problem in recruiting school leaders • Median transition to a first principal position in MO is 38. • Details in C. Koedel, J.Grissom, S.Ni, M. Podgursky. (2011)

  18. Leadership SLLA Scores and Undergraduate Institutions

  19. Illustration of Mobility Costs

  20. Movement of principals would double if they were in same pension system. • Similar findings for teachers • Koedel, Ni, Podgursky (2013)

  21. Policy Recommendations • Transparency • Compute “what if” five year scenarios • Compute Normal Costs for charters and district • Compute life cycle PW calculations for educators • Elect or appoint charter school representatives to pension boards

  22. Policy Recommendations • Explore closingthe plans to new members and freezing as much accrual of new liabilities as legally possible • “transition costs” (economic nonsense) • Transition all new STL and KC teachers to a less expensive and mobile retirement benefit • Cash balance or Defined Contribution • Charter schools outside of KC and STL should have option to partially or totally opt out of PSRS

  23. References • R. Costrell and M. Podgursky. “Reforming K-12 Educator Pensions: A Labor Market Perspective.” Policy Report. New York: TIAA-CREF Institute. (February, 2011). http://web.missouri.edu/~podgurskym/articles/files/Reforming_K-12_Ed_Pensions.pdf • R. Costrell and M. Podgursky. “Distribution of Benefits in Teacher Retirement Systems and Their Implications for Mobility” Education Finance and Policy. Vol. 5 No. 4 (Fall, 2010), pp. 519-557. http://web.missouri.edu/~podgurskym/articles/files/EDFP_a_00015.pdf • R. Costrell and M. Podgursky. “Golden Handcuffs.” Education NextVol 10 No. 1 (Winter 2010), pp. 60-66. http://educationnext.org/files/ednext_20101_60.pdf • R. Costrell and M. Podgursky “Teacher Retirement Benefits.” Education Next. Vol. 9 No. 2 (Spring 2009), pp. 58-63. http://media.hoover.org/sites/default/files/documents/ednext_20092_58to63.pdf • Updated data: http://www.uark.edu/ua/der/People/Costrell/Employer_Contributions_Update.pdf • R. Costrell and M. Podgursky. “Peaks, Cliffs, and Valleys: The Peculiar Incentives of Teacher Pensions.” Education Next. Vol. 8 No. 1 (Winter 2008), pp. 22-28. http://media.hoover.org/sites/default/files/documents/ednext_20081_22.pdf • C. Koedel, S. Ni, M. Podgursky. “Who Benefits from Pension Enhancements?” Education Finance and Policy. forthcoming. • C. Koedel, S. Ni, M. Podgursky, “The School Administrator Payoff from Teacher Pensions.” Education Next. Vol. 13 No. 4 (Fall, 2013), 8-13. • C. Koedel, M. Podgursky, S. Shi. “Teacher Pension Systems, the Composition of the Teaching Workforce, and Teacher Quality” Journal of Policy Analysis and Management. (2013) Vol. 32. No. 3, 574-596.

  24. References • C. Koedel, J.Grissom, S.Ni, M. Podgursky. (2011) “Pension-Induced Rigidities in the Labor Market for School Leaders.” http://www.caldercenter.org/upload/Koedel_Pension-Induced-Rigidities.pdf • C. Koedel, S. Ni, M. Podgursky. (2013) “Defined Benefit Pension Plans and Job Lock: Evidence from the Education Sector. “http://economics.missouri.edu/working-papers/2013/WP1310_knp.pdf • Special issue of Education Finance and Policy: “Rethinking Teacher Retirement Benefits Systems” http://www.mitpressjournals.org/toc/edfp/5/4

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