Trade Your Pension for Better Pay?

That’s one proposal made by the Nashville Chamber of Commerce in its Report Card on Metro Nashville Public Schools (MNPS).

The idea is that if new teachers forego their pension, they could take the savings in higher pay. The Chamber believes that higher pay would help the district attract teachers and encourage them to stay in the district once hired.

An analysis of teacher pay across similar districts found Nashville to lag behind its peers in terms of both starting pay and lifetime earnings.

While raising teacher pay certainly has merit in terms of both attracting talent and keeping teachers in the system, it’s important to look at the tradeoff between pensions and salaries.

Under the current pension system (recently revised) Tennessee teachers are eligible to retire with full pension benefits after they reach a combined number of 90 in years of service and age. That means a teacher who starts at 22 would need to teach until they are 56 in order to retire with full pension benefits.

At current salary levels, a teacher would sacrifice a pension benefit of around $25,000 per year. Factoring an average life expectancy, a teacher who decided to give up her pension would lose benefits totaling $625,000.

That means to make up the actual dollar value of the pension benefit, teachers would need to make about $18,000 more per year than they do now. Again, this assumes retirement after 34 years.

At current levels, this would move starting pay in MNPS to around $59,000 per year.

Alternatively, the district could make starting pay a bit lower and build in larger raises later. That may have the benefit of encouraging teachers to stay. To be competitive, starting pay should probably be raised to around $50,000. Again, though, if teachers are foregoing a $625,000 potential benefit, raises should be built-in to ensure they can earn that benefit over the course of their service.

While the Chamber may be correct that younger teachers are not necessarily as concerned with pensions as those in the past, it should be made clear that giving up a pension is a big financial sacrifice in the long-term. If such an idea is pursued, teachers should certainly be compensated at a level that makes up for that sacrifice over time.

For more on education politics and policy in Tennessee, follow @TNEdReport

 

One thought on “Trade Your Pension for Better Pay?

  1. Pingback: Tennessee Education Report | That’s Attractive

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