This report argues that underfunded defined-benefit pension plans and other post-employment benefits (OPEB) are the hidden drivers of labor unrest in the public sector. As these legacy costs have risen, teacher salaries have flatlined or even declined in value.
Policy recommendations:
In the name of equity and affordability, states should move away from defined-benefit pensions and toward defined-contribution plans.
More of the money currently spent on education should show up in the paychecks of working teachers.
States should consider eliminating retiree health-care benefits for newly hired teachers—indeed, for most government employees. These kinds of benefits have been sharply pared or eliminated throughout the private sector.
To implement these reforms, states could offer teachers a deal wherein raises in salary are matched with switching to a defined-contribution plan. This would have the double benefit of giving younger teachers, with lots of time to save for retirement, a bigger raise in the here-and-now, as well as reducing the government employers’ long-term pension liability.
Madison taxpayers, while spending far more than most K – 12 school districts, supported 25% benefit expenditures of the 2014-2015 budget.