Is It Time to Rethink Teacher Pensions in Maryland?

Many states are struggling to finance under-funded teacher pension systems as well as recruit and retain a high-quality teaching workforce. This paper compares Maryland's former (prior to Spring, 2006) teacher pension system to those in Pennsylvania and several other states. On the basis of simple replacement rates, the former Maryland state plan was the lowest in the nation. However, this comparison ignores other important facets of state plans: (1) Maryland teachers are in the federal Social Security system, while teachers in many other states are not; (2) Teacher contribution rate in Maryland was very low relative to other states, which may be attractive for young teachers; (3) Cost-of-living adjustment in Maryland is more generous and reliable than in many other states; (4) Compared to other states, the Maryland system provided more income up front and less in later years; and (5) Evidence from teacher labor market data does not suggest that teacher retention or quality is worse in Maryland than in Pennsylvania. The author concludes that increased state spending on defined benefit pension plans is unlikely to be a cost-efficient way to staff classrooms with qualified teachers. Given the high mobility of public school teachers, the author advocates providing teachers with a defined contribution alternative to the current system, a plan that would "travel with" mobile teachers similar to plans that predominate in professional labor markets in the private sector and in higher education. Regression Analysis of Teacher Turnover is appended. (Contains 12 endnotes, 3 figures, and 3 tables.) [This report was published in cooperation with the Maryland Public Policy Institute.]