Teachers: A Raise That Should FINALLY happen

Remember that teacher that you always loved or possibly hated. I remember many of my teachers. My fourth grade teacher was a big kayaker and loved to tell us stories of her weekend outdoor experiences. At that age, she was the coolest person. On the other hand, I remember the teacher that gave me all that homework in the fifth grade because she was trying to prep us for middle school; she was one stern person. Although she had good intentions, I still think my workload in the fifth grade was more than any time in middle school.

Whatever the memory may be for others, we all have those memories. The likely reason is because we spend our most influenced years with these people, they have some sort of hand in our direction. And the price of the influence is constantly being debated.

Brace yourselves, because I am going to provide a new way to think about the teacher comp dilemma.

Pensions are the problem, but also a key piece to the solution

#1 Problem with Pensions: Ineffective tool to attraction

Retirement seems like eternity for a new teacher. A 22 year old out of college is more concerned about living a fun lifestyle today, rather than worrying about what cruise they will be going on when they become empty nesters.

So, enticing a new graduate that ranks within the top third of their class (which is one thing America is awful at, we are only recruiting 23% of our teachers from the top third academic cohorts) seems a bit difficult when the enticement used is for a great retirement. The desire to teach should be driven by one’s desire to impact others’ lives, but as seen by the professions attracting top talent, current pay and the opportunity to increase pay in a career is a top desire.

#2 Problem with Pensions: Costing our cities a BOATLOAD of money.

The NCTQ estimates that cities have a pension unfunded liability that equals $325 billion! Yes, that’s billion with a “B.” Data from 2012 showed that Georgia’s pensions are unfunded by over $9 billion.

Unfunded pension liabilities impact everyone. In order to help solve this problem, cities must divert funds from other projects to the pensions causing development to be retarded and then this also leads to teachers being impacted based on future pay increases and possible furloughs.

Here is Your $20,000 Raise

Being a teacher has the extreme benefit of receiving a pension in retirement. Companies have been stopping pensions as fast as they can because of their extreme cost.

Currently, a teacher within Fulton County (a main county in Atlanta Georgia) is getting paid $3,763.88 per month. This is just based on the amount of pension benefits being paid relative to the number of retired teachers. This equates to $45,166.56/year.

When we sit down with a client and set goals for what needs to be obtained by retirement, we are looking to save enough money for a retirement nest egg. We want to get to a lump sum amount that allows for us to draw a percentage (4-4.5%) every year that covers their annual living expenses, without depleting the initial balance.

So, we can apply this to what a city SHOULD do for a teacher’s pension. It would mean that the city would need to have over $1.1 million set aside PER teacher who retires after 30 years. {For the math geeks, here is the math: $45,166.56 (annual pension benefit) / 0.04 (withdrawal rate in retirement)}

By using a simple calculation, we could see that the school system would need to save more than $18,000 per year for every teacher. Also, they would need to grow this asset base by 4.5% per year in order to attain a lump sum level at the end of 30 years of over $1.1 million.

Two Problems, One Solution

States got into a lot of trouble with the pensions due to bad projections in terms of how much the assets would grow, along with projections of how long they would pay out benefits.

It’s time for school systems to follow the lead of the private sector and look to reduce the burden of these long term liabilities.

Utilize the funds that would be necessary to create a lump sum equivalent to a current pension and give this to the teachers today.

This solves two problems. First, it reduces the pressure on states’ budgets with these unfunded liabilities; and, secondly, it makes the teacher profession more attractive to those top third academic cohorts. The current average salary for a teacher ranges between $40,000-$45,000. By adding in the dollars going towards a pension and getting the salary levels to $60,000-$65,000, this aligns more with what we are seeing. The Compare tool on www.yourwela.com currently shows people in their 20s are making about $65,000 on average. Some of those new teachers we are trying to attract are in that age range.

This solution isn’t perfect, but it has logic. Unfortunately, many things the government does isn’t logical to some.