Alleviating Teacher Shortages through Pension Plan Redesign.

• Author: Werneck, Laura Palmer

Shifting demographic patterns have resulted in a teacher shortage that is threatening the quality of classroom instruction in America's public schools. This article examines how many states are redesigning pension plans to alleviate this growing problem.

Over the next 10 years, America will need to hire or retain 2 million teachers to meet the demand enrollment and to replace an aging teaching force, according to Recruiting New Teachers (RNT), a national non-profit organization dedicated to improving teacher recruitment and development. Faced with this daunting task, many states are turning to pension reforms to keep retirement-eligible teachers in the classroom while they search for a more permanent solution. This article explores the demographic changes that resulted in the short supply of teachers and outlines some of the ways states are redesigning public pension plans to mitigate the effects of the shortage.

Teacher Supply and Demand

As Exhibit 1 illustrates, the U.S. Census Bureau documented a 20.5 percent increase in K-12 student enrollment in public schools from 1985 to 2001. Demographers believe this increase was caused primarily by the matriculation of the children and grandchildren of the baby boomers--the 76 million Americans born from 1946 to 1964. The leading edge of the baby boomer generation is now reaching prime retirement age, evidenced by the 16 percent increase in the population of persons ages 50-74 from 1985 to 1999.

The simultaneous increase in student enrollment and retirement-eligible teachers has contributed to the nationwide teacher shortage. Overall, teaching positions are expected to increase by 23 percent for secondary schools and 12 percent for elementary schools. [1] A January 2000 RNT survey revealed a particularly urgent need for special education, science, and math teachers in major urban school districts. Of course, demographics alone do not account for the shortage. Low compensation, poor teaching conditions, and pressure to reduce class sizes also are contributing to the problem.

Tackling Teacher Shortages

To alleviate the shortage, efforts to recruit and retain quality teachers are being made at both the state and district levels. Traditional strategies include loan forgiveness and scholarship programs, signing bonuses that include moving expenses, and salary increases targeted at individuals willing to teach high-demand subjects or in hard-to-staff schools. A relatively new trend is to turn the problem of retiring baby boomers into a temporary solution. By offering incentives through restructured pension plans, many states are hoping to lure retirees back to the classroom and to keep retirement-eligible teachers in the classroom for several more years.

Generally, teachers have three options when they become eligible for retirement: collect pension benefits and stop working, collect pension benefits and draw a salary from a new job, or continue teaching and postpone pension benefits. Faced with these choices, approximately 50 percent of all Washington educators, for example, leave the public school system once they are eligible for retirement. Because of teacher shortages, states are now experimenting with pension plan designs that would offer several new alternatives to retirement-eligible teachers. Specifically, the following three pension alternatives have emerged:

* allow teachers to draw a salary and pension concurrently;

* implement DROP plans; and

* alter the pension benefit formula.

Concurrent Salary and Pension Payments

States have historically barred teachers from simultaneously earning a salary and drawing pension benefits. In light of the teacher shortage, however, an increasing number of states are permitting retirees to return to teaching after a...