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April 27, 2006
Teachers, what's in your wallet? II
From Eduwonk:
Here is an eduissue to keep an eye on: While the rest of the economy is shifting -- for better or worse -- from defined-benefit retirement plans to defined-contribution ones, education stays mostly wed to traditional pensions. It's not good for teachers because it lessens their mobility and financial control and as some forthcoming research will show, some cities have pension arrangements that are fiscally untenable over time.*
What's worse though is that just as retirement financing is shifting more toward individuals rather than taking the lead and empowering their members some teachers' unions are demonstrably ill-serving them! So reports The Los Angeles Times (via Intercepts) in a must-read story you won't be seeing in NEA Today anytime soon! Apparently, some of the nation's teachers' unions are doing little to protect their members from hucksters offering them shoddy investment advice and in fact even abetting the problem.
The shady dealings will obscure a larger issue. In education, shifting from defined-benefit to defined-contribution plans offers several benefits for teachers. First, it is more empowering for teachers because they have more control over their professional mobility. Traditional pension plans do create disincentives for older teachers to move, in effect reducing the leverage of good teachers if they're seeking to change jobs. There are workarounds here (portability, buy-ins, etc...) but it's not a straightforward matter if a teacher wants or must move out of state. And for younger teachers, particularly those who do not plan to make a 30 year career of teaching, traditional pensions offer them less financially than if they invested their money on their own in tax-deferred accounts. And, in some cases such arrangements would allow them more flexibility with things like IRAs as well than they have now. Finally, 401k style arrangements would also offer another way to offer incentives for teachers who took on special assignments, had scarce skills, or were otherwise exceptional or high performers.
However, today's teachers, especially older teachers, came into education with one understanding of what retirement would entail financially if they upheld their end of the bargain. Consequently, any shift toward more of a 401k approach rather than today's defined benefit plans would have to address substantial transitional issues to ensure that current teachers were treated fairly. And, in some states issues like Social Security eligibility would further complicate any transition. Nonetheless, those are issues that can be addressed equitably in public policy. In the end, a system that empowered teachers more would be for the good and it's a conversation worth having. In the meantime, don't take the salesman at face value!
*Politically, this could provoke a backlash at some point...seems better for the teachers to strike a good bargain now ensuring a fair transition and then move on to a more contemporaneous retirement arrangement. Public sympathy will wane when no one else has a guaranteed retirement with full health etc...
Comments
For those of you who did not get to read the whole article, it also says "In what might seem an unlikely partnership, the unions endorse investment providers, even specific products, and the companies reciprocate with financial support. They sponsor union conferences, advertise in union publications or make direct payments to union treasuries."
Posted by: Jerre Reimers at April 28, 2006 03:01 PMJerre,
And none of those statements apply to CTA or the local associations in Ventura County. I did read today that big oil companies have become one of Arnold's biggest campaign donors, why is that Jerre? Instead of giving Arnold millions and Bush millions can't they instead lower the price of gas?
Arleigh – you keep confusing this blog about education issues with a blog about Bush, Cheney and big oil.
But since you want to talk campaign contribution issues, what about the firefighters and law enforcement agencies that have put together a $5 million ad campaign for CTA-endorsed candidate Angelides, money provided by one developer and his daughter? Sounds like those unions and that developer can hardly wait for Angelides to be in office and they can collect on their $5 million investment.
Is this the developer who wants to put low-cost housing that you are in favor of on the K-Mart site?
Jerre,
I personally do not know of any developers interested in the K Mart site. That was merely my suggestion. Do you want a Target there because Target gave Arnold a $100,000 donation? Or do you want Wal Mart there? Last year Wal Mart gave Arnold $50,000 and an hour later he vetoed legislation to make Wal Mart say how many of their workers were getting State paid medical care, because Wal Mart would not provide it. You see Jerre when the state has to subsidize Wal Mart, richest corporation on earth, with more corporate welfare, the kind republicans love to give the rich, it means the State has less money for schools. Why do you bow down to corporations like big oil companies at the expense of our schools and kids? The high price of gas also means fewer dollars for the classroom as Arnold allows oil companies to gouge us. Do you think Arnold is looking the other way because the big oil companies are giving him millions and they now own him? Do you enjoy being ripped off at the pump Jerre?
Tim,
Posted by: Arleigh Kidd at April 27, 2006 10:22 AMIn California teachers do not get Social Security, they only get their STRS pension. Most people get SS and then also can do a 401k through work. Are you saying California teachers should lose their pension and only get a 403b? In other states they tried that and it was such a failure they are switching back to pensions. In terms of the LA Times article CTA does not endorse any companies for 403b products. Locally, none of the associations endorse any 403b products. We always tell our members to consider 403b or 457 products as they are good retirement tools, but only buy them after careful research and after asking how much the fees are, if there are surrender charges, what was the past performance, etc. This includes products offered by NEA. All of the local Districts are the one's who have set the lists of available companies and this is because no company can be offered unless they sign a "hold harmless" agreement with the District.