Missouri Charter Schools and Teacher Pension Plans: How Well Do Existing Pension Plans Serve Charter and Urban Teachers

Abstract

This report examines teacher pension plans in Missouri, with a particular focus on the Kansas City and Saint Louis school districts. Missouri is unusual in that public educators are divided among three pension systems: the Kansas City Public School Retirement System (KC), which covers 3 percent of Missouri teachers; the Public School Retirement System of the City of St. Louis (STL), which covers 4 percent; and the state Public Service Retirement System (PSRS), which covers the remaining 93 percent of teachers. Kansas City and Saint Louis teachers are enrolled in Social Security, while teachers in the larger state system are not. There is no reciprocity between the systems, which means that teachers lose employer contributions if they change systems. Costs have risen sharply over the last decade in the STL and PSRS plans. They will begin rising in the KC plan in 2014. Other notable features of the pension landscape for public educators in Missouri include: • The strong back-loading of benefits in all three pension plans. Educators who teach for less than a full career suffer disproportionately large losses in pension wealth because they exit prior to becoming eligible for retirement benefits. • The “pull” and “push” incentives typical of final-average-salary defined benefit pension plans are present in all three Missouri pension plans. Strong retention incentives for mid-career teachers (“pull”) are followed by similarly strong “push” incentives that induce teachers to retire at relatively early ages. • The charter sector in both city districts has grown rapidly in the past decade. Charters schools now account for 41 percent and 30 percent, respectively, of teacher employment in KC and STL. Charter schools are currently not represented on the pension board in either city district. • The long-term retention rates for new cohorts of teachers in KC and STL, whether employed at charter schools or not, are low. This means that very few of these teachers remain in their pension plans long enough to collect full benefits. Retention rates in both cities are far below retention rates for PSRS teachers. • In addition to the general problems associated with using a heavily back-loaded pension structure to compensate teachers in high-attrition environments, urban schools (both charter and traditional) in Missouri also are disadvantaged in recruiting mid-career teachers or school leaders from neighboring districts because of the lack of reciprocity between the city plans and PSRS. For these reasons, we find that the maintenance of separate pension plans for Kansas City and Saint Louis teachers represents a costly barrier to school improvement that needlessly balkanizes the market for educators in the two metropolitan areas. A reform agenda for the pension plans should include the following elements: • Increased transparency in all plans. This would include “what if” projections of future costs under alternative economic scenarios. It also would include greater transparency regarding contributions versus benefits for educators with different spells of employment in the three plans. • Given the increasing charter-school presence in Kansas City and Saint Louis, charter schools should be represented on both the KC and STL pension boards. • Data on school and teacher quality should be linked to pension data at the state and district levels. This would produce greater transparency regarding how resources are distributed to schools through the pension plans and allow for evaluations of the school staffing effects of various pension plan characteristics. • Alternative plans for new teachers that would be less expensive and provide mobile retirement benefits should be considered, particularly in the city districts. Benefit mobility can be increased by reducing the back-loading of benefits. Switching plans would entail closing the current plans to new members. • Charter schools in PSRS districts should be allowed to partially or totally opt out of PSRS if they have an adequate retirement plan in place that provides mobile benefits. All new teachers in PSRS districts should participate in Social Security, which offers a basic and transparent mobile retirement benefit.