Many teacher pension plans nationwide are not in great shape, but a new study asserts that a few adjustments to teacher-pay plans would let states improve the funding of pensions.
Among the recommended changes is an option to use a teacher's average salary over the course of a career rather than using the teacher's highest annual salary to figure out the annuity.
The pension annuity in teachers' pension plans now often "depends on the highest annual salary, or the highest over a small number of years," according to the Georgetown University study.
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Career averages are commonly used in other defined benefit plans like Social Security. There is a need for change, however, given that close to 80 percent of pension plans for teachers are underfunded, the study said.
The study from the Edunomics Lab at Georgetown University said that every dollar added to a "late-term teacher's final salary" amounts to $10 to $16 of new pension obligations in present dollars. That leads to higher state debt.
"State leaders are likely unaware of the massive debt created by late-term raises or the potential opportunity to mitigate pension debt by better managing final salaries," Marguerite Roza, director of the Edunomics Lab and research associate professor at Georgetown University, said in a statement.
She noted that many states have tried to reduce pension debt by adjusting plan contributions or raising the retirement age. But not many states have considered changing their approach in calculating benefits.
The study looked at schools in San Diego, as well as elsewhere in California, and in Illinois and New Jersey.
The study found that every dollar awarded in final average salary pension calculations amounted to $13.89 in California pension obligations, $15.51 for the Illinois pension obligations and $9.96 for New Jersey pension obligations.
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