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How much do teachers value compensation that is deferred until retirement? This question is important because the vast majority of public school teachers are covered by defined benefit (DB) pension plans that "backload" a large share of compensation to retirement relative to the compensation structure in the private sector. There is little evidence, other than Fitzpatrick (2015), however, about whether DB pensions are consistent with teacher preferences for current and deferred compensation. This study examines a unique setting in Washington State, where teachers enroll in a hybrid, DB-Defined Contribution (DC) pension system, and have choices over their DC contribute rate. These choices reveal preferences about the value teachers place on current versus retirement compensation. We find that teachers choose to contribute an average of 8.18 percent, significantly more than the minimum required contribution of 5 percent. This suggests that teachers value retirement compensation significantly more than previously estimated by Fitzpatrick. Potential explanations for the difference in findings from prior evidence are discussed, including estimation strategies, differences in state settings, overall plan generosity, and the potential for teachers to view DB and DC pensions as different products.

Defined benefit (DB) pension systems determine the size of pension payments using an employee's "final average salary". Thus, employees enrolled in DB pension systems face an incentive to "salary spike" -- strategically increase late career pensionable compensation -- to increase their retirement income. This is an important issue given that public pension systems face increasing scrutiny due to ongoing concerns about their fiscal sustainability. This paper develops an empirical method to quantify the prevalence of salary spiking by identifying cases where end-of-career compensation deviates from expected levels of compensation. We apply this method to the teacher pension systems in Illinois and examine how salary spiking changed in response to policy reform. The results suggest that salary spiking is very common, with about half of late career employees observed as having pensionable compensation that exceeds expectations. Policies designed to dissuade salary spiking by internalizing its costs across districts appear to reduce the prevalence of salary spiking, but there may be unintended consequences for individuals who are "not actually spiking," as such discouraging the assignment of supplementary responsibilities to late career employees.

Today, nine out of 10 Americans age 65 and older depend on Social Security benefits to lead a comfortable and secure retirement. Among all Americans over age 65, Social Security makes up more than half of their household income. This brief outlines the history of Social Security benefits in the public sector, describes the safe harbor rule and how it is intended to work, and then shows its limitations. As a concrete example, it then analyzes the pension formulas covering approximately 1.2 million active public school teachers in the 15 states and the District of Columbia that do not offer universal coverage for teachers. Similar to previous work, it shows that the pension formulas in those states do not protect teachers from receiving retirement benefits that are worth less than they would otherwise receive under Social Security. Those workers should be covered by Social Security immediately. The brief concludes with suggestions about how the Internal Revenue Service (IRS) could amend its rules to protect these workers and more closely align its policies with congressional intent.

Illinois' pension plans have sent the state on a downward spiral. One out of every four dollars that state taxpayers send to Springfield goes toward pensions, and the vast majority of these contributions go toward paying down large pension debt, not the actual retirement benefits given to state and local workers like teachers. The teacher pension system alone makes up over half of the debt, with a total unfunded liability of $57.9 billion. The existing pension structure backloads benefits and disproportionately favors teachers who stay for 30 or 35 years, at the expense of everyone else. The state plan assumes, and depends upon, the fact that the majority of teachers will not stay long enough to collect full benefits. This brief examines how and why Illinois teachers are negatively affected by the current system, and it concludes with recommendations for what policymakers can do to ensure "all" teachers--not just some of them--are given a path to a secure retirement. By adopting a different retirement plan for teachers, the state could better maintain its own finances "and" provide better benefits for teachers. In the face of growing pension debt that eats away at state resources, Illinois direly needs reform. Rather than fight to preserve a system that leaves the majority of its members without adequate retirement benefits, Illinois should use this time of financial unrest to carefully consider its options for sustainable and equitable pension reform.

The Teachers' Retirement System of the State of Illinois is one of the worst-funded public pensions in the nation. In 2013, it held enough assets to cover only 41 percent of its future obligations (Buck Consultants, 2014). This shortfall has led to several reforms, mostly involving benefit cuts that have undermined retirement income security for Illinois teachers and made it more difficult for Illinois school districts to attract and retain qualified teachers. This brief describes the distribution of pensions provided to Illinois teachers under the current plan, and simulates outcomes under a proposed cash balance plan. The authors' previous report "Evaluating Retirement Income Security for Illinois Public School Teachers" (2014) details methods used for the proposed cash balance plan. Results show that 72 percent of Illinois public school teachers hired before 2011--and 56 percent of those with five or more years of completed service--would fare better in the simulated cash balance plan, even though the cash balance plan would be no more costly to taxpayers than the existing plan. [For "Evaluating Retirement Income Security for Illinois Public School Teachers" (2014), see ED559321.]

The financial problems afflicting the Illinois teacher pension plan have grabbed headlines. An equally important problem, though underappreciated, is that relatively few teachers benefit much from the plan. This report evaluates the pension benefits provided to Illinois public school teachers. The researchers project annual and lifetime pension benefits for teachers in both tiers of the state's retirement plan, assuming teachers earn average salaries over their careers and separate from state employment at the rates estimated by the plan actuaries. Results show that long-tenured teachers earn substantial pensions. Most teachers, however, do not work long enough to benefit much from the plan, because at least 25 years of service is required for most teachers to receive large pensions. Sixty-six percent of teachers in the more generous, prereform pension plan lose financially by participating in the plan because the pensions they earn are worth less than their required plan contributions. In the plan available to teachers hired in 2011 and later, 84 percent suffer financial losses by participating. Which teachers benefit most from the Illinois pension plan depends on when they are hired and how long they work. Nonetheless, the plan reduces lifetime benefits for most teachers who remain employed after the benefit eligibility age, encouraging them to retire, even if they are still willing and able to teach. Alternative plan designs, such as cash balance plans, that allow teachers to accumulate retirement benefits more gradually over their careers would distribute benefits more fairly and improve retirement incomes for many Illinois public school teachers.

For years, the debate about American education was like a bad marriage. The arguments were about everything but the core issue--instructional quality. The other issues--education finance, school choice, standards--all matter, but are secondary to the importance of effective instruction. In the labor-intensive education field, effective instruction is nearly synonymous with teacher effectiveness. Trying to improve the quality of education in America without addressing teacher effectiveness is the same as trying to improve a baseball team without paying attention to hitting and fielding. Yet despite clear evidence about how much teachers matter, this is largely what American education tried for much of the 20th century. That all changed quickly in the late 1990s and the aughts. Suddenly teacher quality emerged as a focus of national policymakers. New organizations launched and others made teacher quality a priority. The emphasis was so intense that it prompted a backlash, with some advocates decrying a "war on teachers." The pivot bemused researchers, who for decades had identified teacher effectiveness as the most important in-school factor affecting student achievement. And not surprisingly, as policymakers rushed to close the gap between research and practice, they made mistakes and over-corrections--the predictable and common problems of any significant public policy pivot. Except these policy changes affected America's teachers. Teachers hold a conflicted place in American public life. They are at once individually beloved community figures tackling a difficult and important job and collectively among the most powerful interest groups in American politics. When policymakers began taking a serious look at teacher quality, the stage was set for a political battle that continues now at the national, state, and local level. The story of this change is incomplete. It's playing out in schools and statehouses around the country. It's also full of puzzles and questions, some of which are beyond the scope of this paper. Because teacher effectiveness is so important, why did policymakers wait so long to take it on? If the answer is because teachers' unions are so powerful, then why did change happen when it did--and under Democratic as well as Republican presidents and governors? What role did philanthropy play in driving these changes? Substantively, how much change has actually happened, or are we seeing old policy wine in shiny new bottles? Are the changes championed during the past few years likely to improve student learning? Are they even the optimal approaches for a field colliding with technology, evolving parental preferences, and a changing society? This paper seeks to take an early look at some of those questions. It traces the changes since the late 1990s and attempts to capture a rapidly evolving status quo and make recommendations for next steps. It's based on the authors' research and analysis of existing literature, experience working directly on these issues in the public and nonprofit sectors, and interviews with experts, policymakers, researchers, philanthropists, and practitioners who played key roles leading teacher quality to where it is today.

To shore up the $46 billion pension debt the state has accrued over the past several decades, Illinois has been using its teachers as a piggy bank. New legislation adopted in December 2013 will raise the retirement age for mid-career workers and limit the amount retiree pensions can increase with inflation over time. State and national union leaders have called these changes "pension theft" and threatened to sue. The current uproar has focused mainly on relatively senior workers, but Illinois legislators enacted even stiffer penalties for new teachers in 2010. The 2010 bill had similar elements as the 2013 version--it raised the age at which new teachers could retire and reduced the amount their pensions could adjust for inflation--but it also placed a cap on the amount of retirement benefits they could earn. Most important, the 2010 law made it much harder for new teachers to earn a pension at all by lengthening the time they would be required to work before qualifying for a pension, from five years to ten. The changes will collectively save the state billions of dollars over the next thirty-five years, but the "savings" will come out of the pockets of teachers entering classrooms in the coming years. If a teacher leaves before ten years, Illinois will refund his or her contributions, but it won't pay any interest, and it won't contribute anything on its own. The state estimates that 62 percent of its new teachers won't make it to ten years, meaning Illinois will be forcibly taking no-interest loans from the majority of new teachers. This paper provides an analysis of the current approach to teacher pensions in the context of the broader picture of retirement issues. The paper also reveals the fiscal problems brought on by poor decisions made by state policymakers and a corresponding lack of fiscal discipline. It also presents questions about the design of pension plans for the changing teacher workforce of the future as well as the impact they have on America's largest group of B.A. workers.

Retirement savings are often described as a three-legged stool: Social Security, employer retirement plans, and personal savings. For many American workers, Social Security is the most consistent portion of the three-legged model, providing a solid plank of retirement savings. But nationwide, more than 1 million teachers--about 40 percent of all public K-12 teachers--are not covered by Social Security. In "Uncovered: Social Security, Retirement Uncertainty, and 1 Million Teachers," Leslie Kan and Chad Aldeman analyze the consequences of this policy choice. Teachers without Social Security coverage face substantial uncertainty and must rely more heavily on their employer retirement plans (state pensions) and personal savings. Unfortunately, state pension plans leave too many teachers unprotected. According to an analysis of state pension plans' own assumptions, half of today's new teachers will not stay in a single pension system long enough to qualify for a pension when they retire. Even for teachers who do qualify, the existing structures offer minimal benefits even to those who stay for 10, 15, or even 20-plus years. The subsequent reality: many teachers not covered by Social Security are left with inadequate retirement savings from their time in the classroom. At a time when an increasing number of states struggle with teacher recruitment and policymakers are concerned about retirement security more generally, states should look for ways to provide all teachers with secure retirement benefits. Social Security is not sufficient as a stand-alone retirement program. The authors offer case studies from three hypothetical teachers of varying experience levels to show that all teachers, however, would benefit from Social Security coverage as one component of a comprehensive retirement plan.

As conceived by the Council for Adult and Experiential Learning (CAEL), Lifelong Learning Accounts (LiLAs[SM]) are employer-matched, portable individual accounts used to finance employee education and training. They provide employees with an affordable means of upgrading their skills and knowledge, while helping to meet the needs of employers and the community for a stronger workforce. LiLAs promote individual savings and encourage co-investment in education and training. LiLAs are set up much like a 401(k) retirement plan, in that both employees and employers contribute to the account. CAEL's long-term goal is for LiLAs to become a standard feature of employee compensation packages, with employees and employers receiving a tax benefit for their contributions to LiLA accounts. There is currently federal legislation that would establish a demonstration of LiLAs in up to ten states. Starting in 2001, CAEL implemented a rolling LiLA demonstration program in three sites--Chicago, Northeast Indiana, and San Francisco (in partnership with Jewish Vocational Service)--in the health care, restaurant and manufacturing industries, and the public sector. The programs each had a three-year life span. During the first two years, funds were built through employee contributions and employer matches of up to $500 annually by each party. These resources were matched by public and private grant dollars to provide an incentive for contributions. Participants used accrued LiLA funds for education and training during the three-year period. In the LiLA demonstration, advisors have been key in helping employees develop an Individual Learning Plan (ILP), which serves as a blueprint for determining the educational steps appropriate to each individual's desired career path. By working closely with an advisor, participants can define their career goals and assess the options that best fit their skills, interests, and personal and professional goals. This paper tells the stories of just a few of the 359 participants in CAEL's demonstration sites over the past five years. Participation in the LiLA program has proven to be not just a practical course of action--but for many, a profoundly transformative experience.

In this paper, I document evidence that intergovernmental incentives inherent in public sector defined benefit pension systems distort the amount and timing of income for public school teachers. This intergovernmental incentive stems from the fact that, in many states, local school districts are responsible for setting the compensation that determines the size of pensions, but are not required to make contributions to cover the resulting pension fund liabilities. I use the introduction of a policy that required experience-rating on compensation increases above a certain limit in a differences-in-differences framework to identify whether districts are willing to pay the full costs of their compensation promises. In response to the policy, the size and distribution of compensation changed significantly. On average, public school employees received lower wages largely through the removal of retirement bonuses. However, the design of the policy led some districts to increase compensation, rendering the policy less effective than it might have otherwise been. The following tables are appended: (1) Characteristics of Employees of Illinois Public Schools in the Analysis Sample, 2003-2011; and (2) District Characteristics in 2005, by Survey Response.

Teacher salary decisions are often made with little connection to the pension obligations they entail. In this paper, authors Marguerite Roza and Jessica Jonovski model the impacts of late-term raises on teacher pension obligations showing that on average each dollar raise triggers $10 to $16 in new taxpayer obligations. The authors provide suggestions to mitigate such impacts while improving incentives for early and mid career teachers.

Just 18 minutes before the midnight signing deadline on May 15, 2010, Minnesota state legislators breathed a sigh of relief. Their bipartisan pension reform legislation, which passed both chambers by large margins and aimed to help shore up a potentially failing pension system, had just escaped a veto threat. Under pressure from his Republican legislative allies, Governor Tim Pawlenty signed the omnibus pension bill into law. The relief, however, was short-lived. Fewer than 48 hours later, two retired Minnesota state employees filed a class action lawsuit, claiming that by reducing cost-of-living adjustments, the state had violated contractual rights to promised benefits. As a result, the courts, not the legislators, would have the final say. Minnesota is just one of many states confronting massive pension shortfalls. According to the Pew Center on the States, unfunded state pension obligations total more than $1 trillion and exceed thousands of dollars per resident in many states. If states don't act to rein in pension liabilities, state contributions will eat up an increasingly greater share of revenues, crowding out funding for everything from repairing roads and providing social services to hiring and retaining high-quality teachers and principals. To avoid this threat, 39 states have made significant changes to public pension plans in the last two years. And many more changes are under consideration. But pension reform is not just a financial, ethical, educational, and political issue. It is also a legal issue. And a complicated one at that. As states across the nation wrestle with pension reform, they must strike the right balance in navigating legal constraints, which are often either overlooked in public discussions or overly feared by those involved. States that ignore legal precedents and constitutional protections will find themselves on the losing end of costly court battles. Those that are too timid and tinker only at the edges may also suffer by allowing pension problems to fester and grow. But those that find the right balance, like Minnesota managed to do, can overcome court challenges. The state's Second Judicial District Court ultimately dismissed the case, upholding the reduction in the cost-of-living adjustment (COLA). This brief offers a broad overview of the legal issues that policymakers must confront. State pensions are protected under laws that vary considerably from state to state. Thus, the authors profile four states (California, Illinois, New Mexico, and Ohio) to provide a representative sample of the range of protections mandated under state law. Appended are: (1) State Pension Protection Overview; and (2) Strengths and Weaknesses of Potential Pension Changes. (Contains 1 table and 14 notes.)

Employee fringe benefits, characteristics of head librarians, and interlibrary loan activity among Illinois public libraries are described in this compilation of three reports. The first and largest report delineates results of a 1980/81 fringe benefit survey conducted by telephone interview. It is noted that the Chicago Public Library was specifically excluded from this study of Illinois public libraries. Information is presented on reimbursement for evening, weekend, and overtime work; paid holidays; paid vacations; paid sick leave; other types of leave of absence; support for continuing education and professional association activity; group insurance; retirement provisions; and other fringe benefits. An index of four major public library fringe benefits developed for the sake of comparison, sample survey forms, and 12 tables of data are provided. The second report presents information on Illinois head public librarians by sex, extent of formal education, salary, size of library, and location of library within Illinois. Data extracted from 1979/80 and 1980/81 annual reports are displayed in four tables. A summary of interlibrary loan activity for Illinois public libraries from 1976/77 to 1980/81 is briefly presented in the third report, which includes data on loans received and transmitted. (ESR)

This report focuses on the group benefits available to Illinois public higher education employees. The study provides a perspective on the range of benefits and the differences in the administration of institutional benefits. Findings reveal the availability of retirement annuities that increase with each 10 years of service; optional retirement plans, including a portable retirement benefit program; disability benefits for employees with at least 2 years of eligible service; death benefits to the families of active members with 1.5 years of covered service and of inactive members with at least 10 years of covered service; group insurance benefits; payment of one-half of any unused sick days earned after January 1, 1984, for all state employees when they leave the state service; vacation benefits according to the number of years of service; and tuition waivers for staff and their dependents. The study points out that the issue of benefits should be weighed within the framework of an institution's resources and other priorities. Tables provide detailed data by individual Illinois institution. An appendix details specific sick leave and vacation benefits earned by various classes of employees at each institution. (CK)

This analysis of retirement planning and early retirement incentive plans in Illinois community colleges was drawn from a study of early retirement plans at each of the state's 39 community colleges, and a follow-up survey to clarify information in the documents and determine colleges' plans for the future. After introductory comments on the issue of the "aging professoriate" and the information sources for the analysis, chapter 1 provides a general discussion of retirement trends and attitudes nationally, including a review of research on employee attitudes toward retirement. Chapter 2 explores retirement in academe, summarizing several studies related to faculty attitudes toward retirement. Chapter 3 explores the history of the early retirement concept, the growth of early retirement programs in academia, the advantages and disadvantages of such programs, and attitudes toward early retirement. Chapter 4 considers various approaches to helping people plan for retirement, providing examples of pre-retirement programs. Financial aspects of early retirement are explored in chapter 5, which highlights early retirement incentive options and potential benefits of early retirement. Finally, chapter 6 examines early retirement in Illinois community colleges. This chapter describes the current retirement programs of Illinois community colleges, summarizes a study conducted by Illinois State University designed to determine the effectiveness of early retirement programs, and offers recommendations related to community college retirement programs. Appendices present survey responses to open-ended questions concerning community college retirement plans in Illinois, and survey instruments. (LAL)