Teachers And Social Security

With all the noise about teacher pensions (and lately it’s more noise than signal) it’s interesting that Social Security receives so little attention.  Social Security impacts teacher retirement and is also an illustrative comparison point in terms of the decisions facing policymakers.

Let’s look at the impact first.

As Chad Aldeman and I noted in Friends Without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten Their Retirement Security (pdf) about 40 percent of teachers are not covered by Social Security because they teach in jurisdictions that have not elected to participate in Social Security. This means these teachers don’t contribute to the Social Security system (7.65% of their income up to $117,000 this year with a corresponding 7.65% contribution from their school district) but it also means they don’t earn Social Security credit toward their retirement benefit. Some or all teachers in fifteen states—Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas—are not enrolled in Social Security.

By way of background, from Social Security’s inception until 1950 all State and local government employees were excluded from Social Security coverage. Congress enacted legislation in 1950 that allowed voluntary participation by State and local governments for employees not covered by another pension system.  About 28 percent of state and local government workers are not covered today.

Given the general benefits of Social Security you’d think the teachers unions would be at the forefront of trying to get their members covered by it.  You’d be mistaken. They oppose mandatory coverage and instead focus their efforts on eliminating complicated Social Security rules that exist to ensure that people who are covered by pensions cannot also collect a “windfall” in retirement based on Social Security’s progressive benefits formula.* (Yes, organizations that can’t say enough about how progressive they are champion policies that cut against the progressive nature of what’s arguably America’s most successful progressive program. Sound odd? Welcome to the through the looking glass world of education politics). So despite all the toxic rhetoric about pension reform – a genuine problem – you don’t hear much about getting teachers into Social Security.

Social Security alone is not sufficient as a retirement plan for teachers. Whether through defined-benefit plans, 401k-style plans, or hybrids such as cash-balance plans states and school districts must to more to ensure teachers are on a secure footing for retirement security. But Social Security is a portable retirement benefit that works favorably for teachers as part of a basket of supports.

Social Security is also illustrative as a comparison point for what’s happening with teacher pensions.  For starters it’s a national program.  Teacher pensions, by contrast, are state and local. As a result the overall descriptive numbers about them obscure a great deal of variance. Some pension programs are well-funded and stable, others are facing serious shortfalls. We took a look at that a few years ago in Better Benefits.

Second, “fixing” Social Security is substantively pretty straight-forward albeit politically very difficult. Raising the contribution limit and increasing the progressive features of the program are the most obvious levers (there is also a lot of support for raising the retirement age, which sounds a lot better if you do professional work rather than real labor).

Teacher pensions face problems that go beyond financial shortfalls. In particular, traditional pensions are increasingly a bad fit for a more mobile teacher workforce and an American workforce where people change careers more. This problem is becoming more acute as states increase the length of time it takes to earn a pension benefit in an effort to save money. We’re not talking about just a few years, seventeen states now have vesting periods of 10 years. In 1988, if you asked teachers how many years of experience they had, the most common answer was fourteen or fifteen years. If you asked the same question in 2008 the most common answer would have been one year, followed by two years. So there is a design problem as well as an actuarial one.

The solution? There are not easy ones but we suggest some ideas to tackle both issues in Friends Without Benefits. And we do think including all teachers in Social Security has to be part of the solution package.

*The Social Security Windfall Elimination Provision or WEP exists to remove the windfall that the Social Security benefit formula provides to individuals who have substantial pensions from employment not covered by Social Security. Essentially, the Social Security benefit formula provides workers who spent their lives in low paying jobs relatively higher wage-replacement rates than it does for higher-paid workers. As a result, without the WEP, a worker who spent a substantial part of their career in employment not covered by Social Security would be treated as a low-lifetime earner for Social Security benefit purposes and receive the advantage of the weighted benefit formula.

3 Replies to “Teachers And Social Security”

  1. I agree 100%. Not only does the lack of participation in social security hurt existing teachers who may wish to leave the profession and leave them at the mercy of state and local governments that may not live up to their pension obligations (Detroit?) But it also serves to discourage mid-career professionals in other professions from contemplating a career change into teaching. Because they will lose a significant portion of their previous social security earnings history if they take a teaching job with a state or district that does not participate in social security due to the WEP.

    I would offer one correction to the last paragraph. A teacher with many years of teaching experience in a job not covered by social security will not be treated as a low lifetime earner in the absences of WEP. All those years of teaching will show up as zeros in the social security system. There never was a windfall to be eliminated and the WEP is hugely punitive to teachers who switch careers to a far greater extent than any slight benefit they might gain by the progressive nature of the program. Social security benefits are based on the 35 highest earning years in a person’s career (adjusted for inflation). for a teacher who taught many years in a non social security job, many of those 35 years will be zeros.

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  3. teachers pensions are calculated at two-thirds of their 3 highest earning years including any deferred pay to be added…in the private world that is unheard of, to include them in social security would put them in a class with top executives of major corporations, tell the WHOLE story when you are seeking compassion (more money) for teachers.

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