Introduction: My concern about teacher remuneration is based on my experience with two of my friends. They retired after 30 years of teaching in Fairfax County and, without missing a day, were re-hired at their previous salaries to teach in the exact same position from which they retired. Their income immediately increased 80% — the value of their pension. I think this arrangement is no longer allowed, but I also think that the teachers are not excluded from returning to the County government to work at a salary well above what a new college graduate would earn, the type of new hire that is expected to replace a retiring teacher. It’s not that I am jealous of the teachers, but I am concerned about the justice of such arrangements. Paying the teachers is a financial burden on taxpayers, many of whom are considerably more financially stressed than are the teachers.
Pay for public employees, teachers or not, has no effective control. There is only shame. In a competitive system, such as private-sector businesses, remuneration is limited by the price the company can charge for its product or service. In the public sector, remuneration is limited by what the taxpayers are willing to pay. The will of the taxpayers is theoretically determined in the voting booth; however, taxpayers are not well organized and are not well informed. Most of the information they receive comes from the government itself. Much comes through the public-school system, with generation after generation hearing, for example, the advocates for higher teacher pay. (Indeed, when I was a child, teachers were woefully underpaid, although they taught well – most without a college education.)
So my concern is that teacher remuneration has become an unjust burden on the taxpayer. My “concern” is not a final judgment but rather the reason I have investigated the issue. I am similarly concerned, and have started a similar investigation, about the remuneration of other County employees as well. The newspapers have been reporting on the greatly underfunded pensions for teachers and other government workers, so looking at only salaries is clearly insufficient. I have also looked at pensions as part of the total compensation to teachers.
Teacher contracts specify the number of days of work. We have chosen for our analysis a teacher who has only a Bachelor’s degree and has a contract for 194 days of work. The corresponding number of days of work for private-sector employees is difficult to assess. Small businesses typically give two weeks of personal time off (for sickness, vacation, and personal business) plus five holidays – a total of three weeks of not working, or 245 days of work. Larger businesses give more, typically four weeks of personal time off plus five holidays, so their workers work 235 days. In what follows, we use 235 days for the private-sector employee. We did not consider the salaries of donation-supported non-profit organizations or the Federal government, because most people do not work for such organizations. These organizations are also not limited by strong market forces.
My conversations with my two friends who are teachers made me look at teacher salaries first. I soon found that teacher benefits differed greatly from private-sector benefits, so I added benefits to the comparison.
Teachers, as do other County employees, have defined-benefit pension plans. They are eligible for retirement after 30 years of work, if they are over 55 years of age. Almost all professional private-sector workers have defined-contribution plans and must work at least until age 65 before having enough in the pension fund to be able to retire.
Although I did not look at non-pension benefits, a report by the Bureau of Labor Statistics (ftp://ftp.bls.gov/pub/special.requests/ocwc/ect/ececqrtn.pdf) shows that, on a national average, local government workers receive non-pension benefits that are 15.5% greater than private-sector workers. This percentage is the difference in percent of the salary so that for employees earning $100,000 per year, the difference would be $15,500.
At present, the County is building its first workforce housing. Because teachers with a Bachelor’s degree earn less than 120% of the Area Median Income (approximately $110,000, so that 120% is $132,000), they qualify for workforce housing; this housing constitutes another benefit that I did not consider. Approximately 60% of the workers in Fairfax County earn less than $132,000 per year and thereby qualify for workforce housing.
The justice of teacher pension can also be examined from the point of view of the funding required for future retirees, so I looked at the pension fund. The pension funds were heavily invested in real estate. When the real-estate “bubble” burst, the value of the pension funds dropped considerably. The pension fund is now approximately 22% short of the funds it needs to meet its pension obligations (See http://www.fcfca.org/pdf/PensionFundsStudy2010-03.pdf.) Current returns on investments in reasonably safe investments are under 3%; therefore, the funding shortfall can be overcome only by increasing taxes.
Teacher vs. Private-Sector Remuneration
Fairfax County teachers are among the highest paid professionals in the County. Teachers, many of whom major in psychology or history, earn 50% more than non-teachers who graduate in those same majors (see the table at the end of this report). They earn more than civil engineers, despite the more rigorous educational requirement placed on the engineer.
When pension benefits are added to salaries, they are the highest paid professionals, earning 30% more than do non-supervisory IT professionals. (See http://www.fcta.org/data/fx-public-schools from which the table at the end of this report was taken.) Teachers also receive 15.5% more in non-pension benefits and may soon be able to live in subsidized housing.
The role of the teacher is extremely important. We do want the best that we can afford. The wealthy among us live in large houses and pay more taxes, but the not-so-wealthy majority are being taxed so much that they are making teachers wealthy.
A Remedy to Equalize Compensation
If teachers are to be paid approximately what the most highly paid professionals are paid, rather than well above what these others are paid, adjustment to the pension seems the most logical step. The County could follow the lead of almost all private-sector employers by switching to a defined-contribution plan, similar to a 401k. The present plan is a defined-benefit plan, by which the County guarantees the pension payments to the retired (and possibly re-hired) teacher. In a defined-contribution plan, the County would guarantee how much the County would pay into the employee’s retirement savings fund. The amount in the employee’s retirement account at the time of retirement would depend on how the employee has invested his pension funds. If what the private-sector worker experiences is typical of what teachers would experience, the teacher would probably need to work until age 65 before retiring so that the teacher would have enough funds to carry him through the rest of his life (to age 83 on average). The differences in the two types of plans are substantial. Under a typical defined-contribution plan, a private-sector employee who retires after 30 years would receive a pension of approximately $5,000 per year, as compared to the typical teacher of today, who receives over $70,000 per year.
If the switch to a defined-contribution plan is made, to be fair to the existing teachers, the benefits accumulated to date in the defined-benefit plans should be retained; however, all new benefits would be accrued under the new defined-contribution plan. Teachers near retirement would see little change in their benefits, whereas the young, recently hired teachers would receive a pension benefit similar to that in private industry.
By switching to a defined-contribution pension plan, the County would make the total remuneration of teachers be commensurate with the total remuneration of their professional neighbors and would thereby make the teacher compensation be less burdensome on the taxpayer, what some might consider more in conformance with justice.