Retirement Benefit Changes Could Help Fix Alaska’s Teacher Retention Problem

The issue of teacher shortages is a problem plaguing schools and communities across the nation, and one that is reaching crisis levels. Historically, a majority of people would like to see their child become a public school teacher. That has been changing. In 2022, 62 percent said they would not like to see that happen. These changing views of teaching are tied to fewer people pursuing a career as an educator.

While the teacher shortage predates the COVID-19 pandemic, it was certainly exacerbated by it. Local jurisdictions and states are considering all manner of options for attracting and keeping teachers in the classroom. The Washington Post recently featured a story about teacher apprenticeship programs in states like Iowa, Tennessee, and West Virginia. Hopefully, these programs produce quality teachers for our classrooms. Keeping teachers is the other part of this challenge, but solving this part of the problem helps in two ways: every teacher retained is one less open position to fill and, importantly, teacher effectiveness increases with experience.

One demonstrated way to keep teachers over their careers is to offer them a defined benefit (DB) pension. While there is a high degree of churn in the early years, as new teachers decide whether education is the right career for them, once teachers stay more than five years they are likely to stay for a career, and the incentives built into pensions promote that retention.

In my last column, I wrote about the challenges North Dakota is likely to experience after the legislature passed a bill to close the state’s pension plan for public employees. While teachers are not impacted by the plan closure in North Dakota, other public employees are, and the experience of a state like Alaska foreshadows what is likely to come.

Alaska’s two statewide public pension plans have been closed for almost 17 years. Since that time, all newly-hired public employees, including teachers, have participated in a defined contribution (DC) plan. Alaska has experienced greater challenges in retaining public employees during this period. In fact, the Alaska Department of Public Safety has testified that the inability to offer a DB pension is also a hindrance to recruiting new state troopers.

The National Institute on Retirement Security (NIRS) recently completed a research project for the Alaska Department of Education on options for restructuring retirement benefits, in light of the ongoing recruitment and retention challenges. The data clearly shows that turnover is significantly higher in the DC plans than in the now-closed DB plans.

Data provided by the Alaska Retirement Management Board reveals that actual and expected turnover are both much higher in the DC plans than in the DB plans. Figure A3 below shows that quit rates for prime-aged teachers, who have taught over five years, are two-and-a-half times as high in the DC plans. And the people leaving the DC plans are not retiring – they are just quitting.

These high quit rates have a real-world impact. Figures 3 and 4 capture the retention of female and male teachers in Alaska. Over time, far fewer teachers are retained in the DC plans, especially male teachers. This results in a real loss of teaching years, and results in more classrooms being led by new teachers without experience. Assuming that 100 female and 100 male teachers vest in their retirement plan at age 30, we would expect the 100 female teachers to provide 1,792 years of teaching in the DB plan, but only 1,093 in the DC plan (699 fewer years). For male teachers, the numbers are 1,914 and 935, respectively, which are 978 fewer years in the DC plan.

This translates into a lot of additional hiring needs for the State.

This loss of teaching years not only impacts students in the classroom, but comes at a cost to the state of Alaska. It takes time and money to recruit new teachers and get them in the classroom. Every time Alaska loses a teacher, it costs more money to go out and hire their replacement. The Center for Alaska Education Policy Research at the University of Alaska – Anchorage estimated in 2017 that teacher turnover costs $20,431.08 per teacher, which adds up to a cost to school districts of approximately $20 million per year. These are the hidden costs that are rarely studied or recognized.

Alaska is an outlier among states in their retirement offerings for teachers. In every other state, teachers at least have the option of participating in a DB pension plan or a hybrid DB-DC plan, while most states have kept DB plans as the primary (or only) offering. Considering that teachers and other public employees in Alaska don’t participate in Social Security, retention can be a hard sell for someone teaching in Alaska.

Alaska’s experience should serve as a cautionary tale. Moving away from offering DB pensions has made it more challenging to recruit and retain in an already difficult-to-staff state. Legislation is currently being considered in Alaska that would return to DB pension plans for teachers, state troopers, and other public employees. Whether such legislation ultimately passes remains to be seen, but it is clear that the decision to close the plans 17 years ago has had real-world costs and consequences not only for teachers and other public workers, but also for their students and Alaskan communities. As teacher vacancies grow across the country, concerns about the U.S.’s chances of remaining competitive in an increasingly global economic landscape grow with it.