13 Dec 2012
Categories: Education Finance, K-12 Education
In FY 2010, the state of New Jersey, facing a $2.2 billion budget shortfall, adopted a series of measures to close the gap. The budget delayed $940 million worth of pension fund contributions for FY 2010. It also allowed towns and localities to defer their pension payments.
New Jersey was not alone. For years, state legislatures closed budget gaps by delaying payments to the state pension plan for teachers and other state employees. As state legislators, we had a technical, legislative name for this tactic: “kicking the can down the road.”
As today’s report from the National Council on Teacher Quality shows, the bill is now coming due. The report notes that although 22 states have made some changes to their pension plans, the problem of a pension shortfall is still looming on the horizon. “The
13 Dec 2012
Categories: Education Finance, K-12 Education
NCTQ’s new report on the state of state teacher pension plans is well worth your time. If you’re new to the pension issue, it does a great job of breaking down the issues in simple and clear language. If you know your way around defined benefit plans, there’s still lots of good resources on, for example, the number of states that made changes to their pension formulas over the last four years. And, if you only care about a particular state, it has lots of tables where you can find exactly how your home state is doing.
So go read it all and save it as a resource. For this blog, I want to pull out one of its main findings and show why it matters. Since 2009, 13 states have changed their vesting requirements, and 11 of those 13 made this period longer. The vesting period is amount of time a teacher must be employed before becoming eligible for pension benefits. If they meet the minimum vesting requirement, they’re eligible for a pension. If they don’t, they typically can get their own contributions back and some interest on those contributions, but they forfeit the contributions their employer made on their behalf.
The graph below shows the distribution of state vesting requirements. In 2012, 25 states required teachers to stay in the state pension plan for at least five years before vesting, and 15 required them to stay 10 years.
With today’s increasingly mobile workforce, five or 10 years is a relatively long time to stay