Making Teacher Pensions Portable
Point #2 of my Seven Keys to Education Reform calls for portable teacher pensions. Many teachers would benefit from career mobility to keep themselves energized professionally. To date, those who have needed to move on, within or out of the profession, could only do so with severe financial penalties. Meanwhile, union pension fund managers have faced fears of insolvency due to underfunding as well as early withdrawals. The good news is that real solutions are being proposed.
Most news stories about state and municipal pension funds do not have happy endings for anyone. A piece from my Kellogg alumni magazine offered a pleasant departure from that trend. Professors Joshua Rauh of Northwestern University and Robert Novy-Marx of the University of Rochester have co-authored a solution to the puzzle…
“…that states be allowed to issue tax-exempt bonds to pay off their pension debt. But state would only qualify for the tax exemption if they agreed to place new employees in defined contribution 401 (k) plans rather than traditional pensions. All new hires would also be eligible for Social Security.”
This proposal addresses several of the issues raised in my earlier post, Trouble with Defined-Pension Funds, and is only one of several remedies suggested in the full text of the article. I recommend it.