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REL Midwest Ask A REL Response

Teacher Workforce

April 2019

Question:

What research is available on cost savings related to teacher benefits?



Response:

Following an established Regional Educational Laboratory (REL) Midwest protocol, we conducted a search for research reports and descriptive studies on cost savings related to teacher benefits. In particular, we focused on identifying resources related to teacher benefits such as retirement plans, health insurance and other benefits. For details on the databases and sources, keywords, and selection criteria used to create this response, please see the Methods section at the end of this memo.

Below, we share a sampling of the publicly accessible resources on this topic. References are listed in alphabetical order, not necessarily in order of relevance. The search conducted is not comprehensive; other relevant references and resources may exist. For each reference, we provide an abstract, excerpt, or summary written by the study’s author or publisher. We have not evaluated the quality of these references, but provide them for your information only.

Research References

Aldeman, C. (2016). The pension Pac-Man: How pension debt eats away at teacher salaries. Sudbury, MA: Bellwether Education Partners. Retrieved from https://eric.ed.gov/?id=ED567809

From the ERIC abstract: “Why aren’t teacher salaries rising? This puzzle can be explained by three trends eating into teachers’ take-home pay: rising health care costs, declining student/teacher ratios, and rising retirement costs. Retirement costs are the most hidden of these three factors. The result is that most teachers are getting the worst of both worlds. Teachers are told they’re accepting lower base salaries in exchange for higher future retirement benefits, but because existing pension plans backload benefits to the end of a teacher’s career, that trade only works well for the small minority of teachers (about one in five) who remain teaching in the same retirement system for 25 or 30 years. Even these teachers may have preferred higher salaries at all stages of their career over waiting until retirement for a disproportionately large reward. Rather than face some hard choices, state policymakers are allowing retirement costs to eat up ever-larger shares of teacher compensation. Unless states adopt alternative retirement models, teachers will likely see retirement costs eat further and further into their take-home pay. This report discusses this dilemma in five sections: (1) Teacher Salaries Are Stagnating While Benefit Costs Rise; (2) Teacher Retirement Costs Are Rising, but Actual Benefits Are Not; (3) Pensions Aren’t Serving All Teachers Equally Well; (4) Getting Pension Debt under Control Would Benefit Teachers; and (5) How to Actually Raise Teacher Salaries.”

Aldeman, C. (2019). Health care for life. Education Next, 19(1), 28–35. Retrieved from https://eric.ed.gov/?id=EJ1199909

From the ERIC abstract: “Los Angeles Unified, the second-largest school district in the country, is on pace to spend more than half of its annual budget on retirement and health-care costs by the year 2031. By then, it is projected to spend 22.4 percent of its budget on pensions and 28.4 on health-care benefits for current and former workers. The cost of health care is rising rapidly in all parts of the nation’s economy, but the pressures in the public sector, and particularly in public education, are different. Like many school districts, where salaries are low compared to private-sector peers, Los Angeles Unified School District (LAUSD) has chosen to compensate by providing its teachers with generous health benefits. In fact, the district extends medical, dental, and vision coverage not just to current employees but also to retirees and their spouses, who do not pay premiums or deductibles and yet qualify for full benefits for life. So LAUSD’s projected health-care spending includes 38,000 former workers and spouses, each of whom is estimated to cost up to $291,000 during their retirement years. LAUSD is an outlier in terms of how generous those benefits are, and the district has begun to roll back who is eligible to receive them over the past decade. Teacher retiree health care is perhaps the ultimate arcane issue in the education sector. There are no funders investing in solutions to this issue, there are few reliable sources of data, and until recently, states and districts did not even calculate how much they had promised in future benefits, let alone start saving to pay for those promises. However, over the past decade, new financial accounting rules have forced states and districts to start recognizing and publicly reporting those costs, which is likely to put even more downward pressure on teacher salaries and other school spending. These trends are contributing to broader teacher unrest, and were factors in recent teacher walkouts in states like Colorado, Kentucky, Oklahoma, and West Virginia. In this article, Chad Aldeman reviews the history and landscape of retiree health benefits, explains why those plans might not be having the desired effects on the teacher workforce, and explores options for reform.”

Costrell, R. M. (2015). District costs for teacher health insurance: An examination of the data from the BLS and Wisconsin (Productivity for Results Series No. 8). Dallas, TX: George W. Bush Institute, Education Reform Initiative. Retrieved from https://eric.ed.gov/?id=ED560222

From the ERIC abstract: “Rising health insurance costs have been a source of fiscal distress for school districts. In this paper, I closely examine data from the National Compensation Survey (NCS) of the Bureau of Labor Statistics (BLS) to address a few basic questions: (1) Are district costs for teachers’ health insurance higher, on average, than employer costs for private-sector professionals?; (2) If so, how much of this represents greater access to and participation in employer plans?; (3) How does the difference in employer cost break out between that of the policies’ total premiums and the employer’s share of those premiums?; and (4) What is the impact of collective bargaining on total premiums, employer cost and employee contributions? To address the first question, I convert BLS’ published estimates of employers’ hourly cost to annual cost, since a shorter work year for teachers inflates the hourly cost of year-round benefits. Using unpublished BLS data on annual hours worked, I find average annual employer insurance costs for teachers to be 25 to 29 percent higher than for private-sector professionals. Adjusting for participation rates, the cost is 15 to 18 percent higher. Direct estimates of employer medical premiums present a mixed picture: higher employer premiums for teachers with single coverage, but not family coverage. In both cases, total medical premiums are higher for teachers than for private-sector professionals, but for family coverage the teachers cover the extra premiums themselves. Employees incur out-of-pocket costs, in addition to premiums. One reason teachers’ insurance plans are more expensive is that plan design features (such as generally lower deductibles) reduce their out-of-pocket costs. The BLS data show that unionization is associated with higher total premiums, higher employer costs, and lower employee contributions in both the public and private sectors. This suggests that the high unionization rate among teachers plays a significant role in districts’ higher average cost. Varying strength of teachers unions across states also helps explain the wide variation in district costs. In some nonunion states, teacher health insurance benefits are not particularly generous, due to high out-of-pocket costs (e.g. high deductibles) or high teacher shares of premiums (as in Arkansas). In other states, with strong unions, district insurance costs can be very expensive. It is in those states that the opportunities for district cost reduction are most promising. I examine newly available data from Wisconsin to quantify the impact of that state’s recent change in collective bargaining law, Act 10. I find a sharp reduction in district costs from lower-cost policies and higher teacher contributions: 13 to 19 percent in the first year after Act 10, and 18 to 23 percent after the second year, relative to projected district costs.”

Doherty, K. M., Jacobs, S., & Lueken, M. F. (2015). Doing the math on teacher pensions: How to protect teachers and taxpayers. Washington, DC: National Council on Teacher Quality. Retrieved from https://eric.ed.gov/?id=ED556301

From the ERIC abstract: “Challenging the claims of pension boards and other groups about the cost-effectiveness, fairness and flexibility of the traditional defined benefit pension plans still in place in 38 states, this report includes a report card on each of the 50 states and the District of Columbia, with a detailed analysis of state teacher pension policies, and grades the states on the extent to which they: (1) Offer teachers the option of a flexible and portable primary pension plan, such as a defined contribution (DC) plan; (2) Ensure that traditional defined benefit (DB) pension plans are portable, flexible, and fair for all teachers; (3) At a minimum, ensure some basic principles of fairness in traditional systems; (4) Shore up pension funding for existing commitments; and (5) Require that pension systems smoothly accrue pension wealth with each year of work. The following are appended: (1) Overview of state teacher pension systems; (2) State retirement eligibility rules; (3) State teacher pension unfunded liabilities, per pupil; (4) Unfunded pension liabilities by state (2014); and (5) State policies on teacher purchase of time.”

Glander, M., Cornman, S. Q., Zhou, L., Noel, A. M., & Nakamoto, N. (2018). An evaluation of the data from the Teacher Compensation Survey: School Year 2007-08 through 2009-10. (NCES 2018-120). Washington, DC: National Center for Education Statistics, Institute of Education Sciences, U.S. Department of Education. Retrieved from https://eric.ed.gov/?id=ED581661

From the ERIC abstract: “The Teacher Compensation Survey (TCS) was a research and development effort by the National Center for Education Statistics (NCES) to explore the possibility of developing an administrative records survey that would compile compensation and demographic data on all public school teachers in the nation. A pilot survey in 2007 collected data from seven states for school year (SY) 2005-06. The number of participating states increased in subsequent years, and by 2012, data were collected from 24 states for the 2010-11 school year. TCS was discontinued after the 2010-11 collection due to budget constraints. This report summarizes the results of the data collected for the 2007-08, 2008-09 and 2009-10 school years. Limited resources prevented a more timely release of these data. While the data may be old, this report is being issued now because TCS afforded valuable lessons that are applicable to any similar, future collection efforts by NCES or by others seeking to gain a better understanding of issues related to teacher compensation. The purpose of this report is to describe both the potential of the collection and the practical problems encountered in the hopes that this will inform future survey efforts. In addition to any analytical value it may have, the TCS effort provides valuable lessons in collecting teacher compensation data. The analysis in section 3 looks closely at the problems encountered over three years of collecting TCS data and suggests ways these could be addressed.”

Kelly, P., Tejeda-Delgado, C., & Slate, J. R. (2008). Superintendents’ views on financial and non-financial incentives on teacher recruitment and retention. International Journal of Educational Leadership Preparation, 3(1). Retrieved from https://eric.ed.gov/?id=EJ1067200

From the ERIC abstract: “In this study, the researchers investigated the perceived relationships of financial and non-financial incentives on teacher recruitment and retention among public school teachers in the State of Texas from the perspective of 98 public school superintendents. Findings revealed that school districts tended to offer teachers’ salaries over the state base pay, although signing bonuses were relatively infrequent. Other than contributing to teacher health care plans, financial incentives were generally not provided to teachers. Non-financial incentives were positively responded to by these superintendents. Implications of these findings are discussed.”

McGee, J. B., & Winters, M. A. (2017). How pensions contribute to the premium paid to experienced public school teachers. Educational Researcher, 46(5), 250–258. Retrieved from https://eric.ed.gov/?id=EJ1149676

From the ERIC abstract: “Many argue that public school systems should stop linking teachers’ salaries so closely to their years of experience. However, the effect of deferred retirement compensation on the premium paid to experienced teachers has, to date, been underappreciated. To shed more light on this issue, we calculate the total compensation earned by teachers in New York City and Philadelphia from both salary and deferred retirement compensation under each system’s currently operating defined-benefit plan. Retirement compensation in both cities is back-loaded, which substantially increases the premium paid to highly experienced teachers. In late-career years, teachers often earn a larger compensation premium from the accrual of pension benefits than from salary. We show that cash-balance retirement plans, which are less back-loaded, would substantially reduce experience premiums without reducing the total compensation for the average entering teacher.”

Note: REL Midwest was unable to locate a link to the full-text version of this resource. Although REL Midwest tries to provide publicly available resources whenever possible, it was determined that this resource may be of interest to you. It may be found through university or public library systems.

Petrilli, M. J., & Roza, M. (2011). Stretching the school dollar: A brief for state policymakers. Washington, DC: Thomas B. Fordham Institute. Retrieved from https://eric.ed.gov/?id=ED516583

From the ERIC abstract: “After years of non-stop increases—national k-12 per-pupil spending is up by ‘one-third’ in inflation-adjusted dollars since 1995—schools now face the near-certainty of repeated annual budget cuts for the first time since the Great Depression. In some states and districts, reductions will be dramatic—well into the double digits. And these new revenue-trend levels are likely to be semi-permanent, what with increased pressure on the public purse from the retirement of Baby Boomers, Medicaid and Medicare costs, debt payments, and other demands. The challenge for education policymakers is not only to cut carefully so as not to harm student learning, but, better yet, to transform these fiscal woes into reform opportunities: to cut smartly and thereby help schools and students emerge stronger than ever. This paper offers some fifteen ideas on how to do that, mostly drawn from a recent Harvard Education Press book developed by the Thomas B. Fordham Institute and the American Enterprise Institute: ‘Stretching the School Dollar: How Schools and Districts Can Save Money While Serving Students Best.’ These ideas are: (1) End ‘last hired, first fired’ practices; (2) Remove class-size mandates; (3) Eliminate mandatory salary schedules; (4) Eliminate state mandates regarding work rules and terms of employment; (5) Remove ‘seat time’ requirements; (6) Merge categorical programs and ease onerous reporting requirements; (7) Create a rigorous teacher-evaluation system; (8) Pool health-care benefits; (9) Tackle the fiscal viability of teacher pensions; (10) Move toward weighted student funding; (11) Eliminate excess spending on small schools and small districts; (12) Allocate spending for learning-disabled students as a percent of population; (13) Limit the length of time that students can be identified as English Language Learners; (14) Offer waivers of non-productive state requirements; and (15) Create bankruptcy-like loan provisions.”

Podgursky, M. (2011). Teacher compensation and collective bargaining. In E. A. Hanushek, S. J. Machin, & L. Woessmann (Eds.), Handbook of the Economics of Education (Vol. 3, pp. 279–313). St. Louis, MO: Elsevier. Retrieved from https://eric.ed.gov/?id=ED527055

From the abstract: “While compensation accounts for roughly 90 percent of K-12 instructional costs, there is little evidence of rational design in these systems. This chapter reviews the nature of teacher compensation systems in developed economies and research on their performance effects. Since these compensation schemes typically arise out of collective negotiations, this chapter also surveys the smaller literature on the effect of teacher collective bargaining on earnings and school outcomes.”

Note: REL Midwest was unable to locate a link to the full-text version of this resource. Although REL Midwest tries to provide publicly available resources whenever possible, it was determined that this resource may be of interest to you. It may be found through university or public library systems.

Rowan, J. M. (2010). Prescription program provides significant savings. School Business Affairs, 76(2), 31–32. Retrieved from https://eric.ed.gov/?id=EJ904653

From the ERIC abstract: “Most school districts today are looking for ways to save money without decreasing services to its staff. Retired pharmacist Tim Sylvester, a lifelong resident of Alpena Public Schools in Alpena, Michigan, presented the district with a pharmaceuticals plan that would save the district money without raising employee co-pays for prescriptions. The prescription program works essentially the same way as most medical programs. It starts with a preferred-provider network of local pharmacies, but it also has a wraparound network of more than 55,000 pharmacies nationwide. The author discusses how the program provides significant savings.”

Toutkoushian, R. K., Bathon, J. M., & McCarthy, M. M. (2011). A national study of the net benefits of state pension plans for educators. Journal of Education Finance, 24–51. Retrieved from https://eric.ed.gov/?id=EJ936560

From the ERIC abstract: “Although benefits can be a sizable part of an educator’s total compensation, there has been little scholarly inquiry into the state pension plans for educators. Despite the fact that all defined benefit plans rely on the same basic formula for calculating annual pensions, they vary across states in the multiplier used, the method for calculating final average salary, the cost of participating in the plan, whether caps are imposed on first-year benefits, how cost-of-living increases are made, whether benefits are subject to state income taxes, and whether educators can retain Social Security benefits. All of these factors can influence the total pension received by educators. Educators are unlikely to know the net effect of the parameters used in each state’s plan on their net benefits and how the net benefits compare across states. This study addresses this aspect of educator compensation by analyzing the differences among state-run defined benefit plans and how these plans can affect the net benefits for educators. The first portion of this article reviews the empirical and theoretical literature on retirement benefits and their effects on the labor market decisions of educators. The second section describes how to calculate the net benefits from state-run defined benefit plans, and how the components of these plans can affect an educator’s retirement compensation. Next, data are used on the defined benefit plans for educators in 49 states to estimate the net retirement compensation for educators and demonstrate how the net benefits vary across states. Finally, this article concludes with some suggested implications of changes in pension systems for educators and directions for future research.”

Zeehandelaar, D., & Winkler, A. M. (2013). The big squeeze: Retirement costs and school district budgets. Washington, DC: Thomas B. Fordham Institute. Retrieved from https://fordhaminstitute.org/national/research/big-squeeze-retirement-costs-and-school-district-budgets

From the summary: “In The Big Squeeze: Retirement Costs and School-District Budgets, we analyze and project how big an impact the pension and retiree health care obligations will have on the budgets of three school districts: Milwaukee Public Schools, Cleveland Metropolitan School District, and the School District of Philadelphia.”

Methods

Keywords and Search Strings

The following keywords and search strings were used to search the reference databases and other sources:

  • Compensation

  • “Salary schedule” “state policy”

  • “Teacher employment benefits” funding

  • “Teacher employment benefits” “cost savings”

  • “Teacher employment benefits” “cost effectiveness”

Databases and Search Engines

We searched ERIC for relevant resources. ERIC is a free online library of more than 1.6 million citations of education research sponsored by the Institute of Education Sciences (IES). Additionally, we searched IES and Google Scholar.

Reference Search and Selection Criteria

When we were searching and reviewing resources, we considered the following criteria:

  • Date of the publication: References and resources published over the last 15 years, from 2004 to present, were included in the search and review.

  • Search priorities of reference sources: Search priority is given to study reports, briefs, and other documents that are published or reviewed by IES and other federal or federally funded organizations.

  • Methodology: We used the following methodological priorities/considerations in the review and selection of the references: (a) study types—randomized control trials, quasi-;experiments, surveys, descriptive data analyses, literature reviews, policy briefs, and so forth, generally in this order, (b) target population, samples (e.g., representativeness of the target population, sample size, volunteered or randomly selected), study duration, and so forth, and (c) limitations, generalizability of the findings and conclusions, and so forth.
This memorandum is one in a series of quick-turnaround responses to specific questions posed by educational stakeholders in the Midwest Region (Illinois, Indiana, Iowa, Michigan, Minnesota, Ohio, Wisconsin), which is served by the Regional Educational Laboratory (REL Midwest) at American Institutes for Research. This memorandum was prepared by REL Midwest under a contract with the U.S. Department of Education’s Institute of Education Sciences (IES), Contract ED-IES-17-C-0007, administered by American Institutes for Research. Its content does not necessarily reflect the views or policies of IES or the U.S. Department of Education nor does mention of trade names, commercial products, or organizations imply endorsement by the U.S. Government.