First Person

Voices: PERA responds to NCTQ report

According to the National Council on Teacher Quality or NCTQ, “State pension systems are severely underfunded. Most retirement eligibility rules are burdensome and unfair. Costs to teachers and school districts are on the rise. The squeeze is on teachers in numerous other ways.” These are the key findings in a recent report called No One Benefits: How Teacher Pension Systems Are Failing Both Teachers and Taxpayers on state teacher pension policy by NCTQ, an organization founded in 2000 to provide an alternative national voice to existing teacher organizations and to challenge the current structure and regulation of the teaching profession.

Ed News Colorado asked Greg Smith, executive director of the Colorado Public Employees’ Retirement Association (Colorado PERA), for his thoughts on the NCTQ report.

Greg Smith: From our perspective, Colorado PERA’s hybrid defined benefit plan accomplishes the priorities identified by the NCTQ report. The extraordinary investment return realized through Colorado PERA continues to work for Colorado taxpayers while providing fair, portable benefits to valued K-12 educators throughout the state. The comprehensive reform enacted in Colorado in 2010 was the first in the nation and restored Colorado PERA’s long-term sustainability. Unfortunately, the NCTQ report does not recognize many of the reforms enacted in Colorado, nor does NCTQ fully acknowledge the hybrid portability features existing in Colorado PERA law.

Defined contribution vs. defined benefit

In short, the report finds the structure of teacher pension systems in the United States “untenable.” In ultimately concluding that a defined contribution system is the better mechanism for public sector retirement, the report ignores from the outset the value that a pension plan provides in attracting and retaining quality educators. The report also fails to recognize the data that suggests that the defined benefit system is the most cost effective way to provide a secure retirement.

Through the outperformance of a professionally managed, globally diversified institutional investment program and the economies of scale over individual accounts, a defined benefit program delivers the same retirement income at a 46 percent lower cost than a defined contribution plan. According to the National Institute for Retirement Security’s research “A Better Bang for the Buck,” defined benefit plans 1) avoid the problem of “over-saving” by pooling the longevity risks of large numbers of individuals, 2) are ageless and therefore can maintain an optimally balanced investment portfolio rather than shifting over time to a lower risk/return asset allocation as is the case for individual investors, and 3) can achieve higher investment returns compared to individual investors because of professional asset management and lower fees.

In the case of Colorado PERA, members and taxpayers have been the beneficiaries of a 30-year annualized return of 10 percent on the Colorado PERA investments. During the 25 years ending Dec. 31, 2011, employers/taxpayers have paid $13.5 billion into the Colorado PERA system. During that same time, Colorado PERA distributed $37.8 billion to retirees and increased the investment portfolio from $5.9 billion to $38.2 billion. That’s $70 billion in value for a $13.5 billion taxpayer investment – a lot better than any 401(k)’s have performed, and a valuable benefit for Colorado educators and taxpayers.

Portability for Colorado teachers

Not only is the 401(k) approach inferior in its ability to generate retirement security, it offers no greater portability than the Colorado PERA hybrid defined benefit plan. Consistent with NCTQ’s principles, Colorado teachers always have access to their contributions into the system plus a competitive interest rate if they should leave public employment. They also have access to employer-paid money subject to a reasonable and equitable vesting schedule. Colorado PERA provides the right balance between portability and the employers’ interest in limiting costly turnover in teachers.

Turnover is extremely expensive and can be detrimental to the quality of education. When the objective is to have a consistent staff of quality educators, the overall compensation package should be designed to incentivize them to stay in the same educational environment. This is accomplished in Colorado through PERA’s hybrid portability features and the opportunity for a lifetime benefit for career teachers regardless of where they taught in Colorado.

With regard to state-to-state portability, PERA members are limited by both federal and state law to a maximum of 10 years of purchased service credit in the PERA system. Members are required by state law to pay the full actuarial cost associated with the purchase of service credit so PERA receives the amount of money necessary to fund the benefit being purchased. The NCTQ report actually points to a portion of Colorado PERA’s portability feature as an example other states should follow (on p. 36).

Pension reform in Colorado

With the passage of Senate Bill 10-1 many changes were made that both increased the funding to the system and lowered the cost of the benefits paid by the system. As a result of decisive and comprehensive action in 2010, Colorado PERA’s unfunded liabilities were reduced by over $9 billion overnight and the costs of future pensions were substantially reduced. These changes included contribution increases for both employers and employees that phase in over time, a decrease in the Cost of Living Adjustment (COLA) paid to all members including existing retirees, requirements that members work longer before reaching eligibility to retire with full benefits, and a reduction in the benefits for members who retire early in the future, among other cost-saving changes. Also, there was a change to when members receive a match of their contributions when they leave employment and decide to exercise that portability feature and take their account with them.

Prior to SB 10-1, regardless of the amount of service credit, any member who left employment and decided to take a refund received a 50 percent match on their contributions. SB 10-1 added a requirement that the member have at least five years of service in order to be eligible for a 50 percent match. Frankly, there was both a cost consideration and a retention incentive to go to a five-year vesting period.

Regrettably, the data used by NCTQ to come up with Colorado’s public retirement picture did not take into consideration the increased contributions from employers and employees and the benefit changes that are contained in the SB 10-1 reforms.

With the contribution increases, which will ratchet in over a period of years, and the benefit changes outlined above, PERA is projected to be fully funded within approximately 30 years. Contribution rates, when fully implemented, will meet or exceed the NCTQ recommended funding standards to ensure the long-term existence of a reliable pension for Colorado educators. In addition, consistent with objectives identified by NCTQ, Colorado has implemented safeguards to prevent politics from interfering with this reform. There are limited steps that can be taken to control what a future General Assembly does, but it is written into law that legislators cannot enact any benefit increases that have not been the subject of an actuarial study to ensure that there is adequate funding for the benefit increase.

Also, SB 10-1 included automatic triggers for when contributions can change and when the COLA can be adjusted. In some states, teacher unions negotiate increases in pension benefits. This currently doesn’t happen in Colorado.

Rate of return

Questions have also arisen about PERA’s annual projected rate of return on pension investments. In 2009, as part of the process for developing its comprehensive recommendation to the General Assembly to ensure the long-term sustainability of the fund, the PERA Board of Trustees reduced the assumed rate of return on its investments to 8 percent from 8.5 percent. Most recently, the board voted in November to keep the rate steady at 8 percent. The board follows a disciplined process in evaluating the investment return assumption which includes retaining renowned actuarial and investment experts. KPMG, PERA’s outside independent auditor selected by the State Auditor’s Office, called PERA’s process “the most rigorous it has seen.”

Some people have said that this figure is too high and therefore, not realistic. The PERA board recognizes the controversy over this expectation and the fact that reasonable people can disagree about what the future holds. In response, the board has led the public pension industry to a new level of transparency by reporting PERA’s funded status using a range of return expectations from 6.5 to 9.5 percent rate of return. (See the PERA Comprehensive Annual Financial Report, page 35.) The annualized rate of return since the 2008 financial crisis has been in excess of 10.9 percent. See also the Colorado PERA fact sheet “8 Reasons Why PERA Can Earn 8 Percent.”

In conclusion

The topic of retirement as a component of teacher compensation is an area that has garnered significant attention since the Great Recession. After the NCTQ report was released, the Center for State and Local Government Excellence issued “Compensation Matters: The Case of Teachers,” authored by Alicia H. Munnell and Rebecca Cannon Fraenkel of the Center for Retirement Research at Boston College.

This research concluded that total compensation (including a pension) matters when attracting the best talent to the teaching profession. Since 1931, Colorado PERA has been able to change with the times to remain sustainable. With a proven track record of providing value to the taxpayers and an equitable benefit to Colorado’s educators, we must have the discipline and patience to let the landmark, bipartisan reform legislation work.

Colorado PERA appreciates the opportunity to provide comment regarding the NCTQ report findings and we thank Ed News Colorado for its interest in providing a broader perspective on the important issue of retirement security as it relates to the education community.

No One Benefits: How teacher pension systems are failing both teachers and taxpayers

First Person

I’ve been mistaken for the other black male leader at my charter network. Let’s talk about it.

PHOTO: Alan Petersime

I was recently invited to a reunion for folks who had worked at the New York City Department of Education under Mayor Michael Bloomberg. It was a privilege for me to have been part of that work, and it was a privilege for me to be in that room reflecting on our legacy.

The counterweight is that only four people in the room were black males. Two were waiters, and I was one of the remaining two. There were definitely more than two black men who were part of the work that took place in New York City during that era, but it was still striking how few were present.

The event pushed me to reflect again on the jarring impact of the power dynamics that determine who gets to make decisions in so-called education reform. The privileged end up being relatively few, and even fewer look like the kids we serve.

I’m now the chief operating officer at YES Prep, a charter school network in Houston. When I arrived at YES four years ago, I had been warned that it was a good old boys club. Specifically, that it was a good old white boys club. It was something I assessed in taking the role: Would my voice be heard? Would I truly have a seat at the table? Would I have any influence?

As a man born into this world with a black father and white mother, I struggled at an early age with questions about identity and have been asking those questions ever since.

As I became an adult, I came to understand that being from the suburbs, going to good schools, and being a lighter-skinned black person affords me greater access to many settings in America. At the same time, I experience my life as a black man.

Jeremy Beard, head of schools at YES, started the same day I did. It was the first time YES had black men at the leadership table of the organization. The running joke was that people kept mistaking Jeremy and me for each other. We all laughed about it, but it revealed some deeper issues that had pervaded YES for some time.

“Remember when you led that tour in the Rio Grande Valley to see schools?” a board member asked me about three months into my tenure.“That wasn’t me,” I replied. I knew he meant Jeremy, who had worked at IDEA in the Valley. At that time, I had never been to the Valley and didn’t even know where it was on the map.

“Yes, it was,” he insisted.

“I’ve never been to the Valley. It wasn’t me. I think you mean Jeremy.”

“No, it was you, don’t you remember?” he continued, pleading with me to recall something that never happened.

“It wasn’t me.”

He stopped, thought about it, confused, and uttered, “Huh.”

It is difficult for me to assign intent here, and this dynamic is not consistent with all board members. That particular person may have truly been confused about my identity. And sure, two black men may have a similar skin tone, and we may both work at YES. But my life experience suggests something else was at play. It reminds me that while I have the privilege of sitting at the table with our board, they, as board members, have the privilege of not having to know who I am, or that Jeremy and I are different black dudes.

It would be easy to just chalk this all up to racial politics in America and accept it as status quo, but I believe we can change the conversation on privilege and race by having more conversations on privilege and race. We can change the dynamics of the game by continuing to build awareness of diversity, equity, and inclusion. We can also advocate to change who has seats at the table and whose voices will be heard.

I remain hopeful thanks to the changes I have witnessed during my time at YES. The board has been intentional in their efforts to address their own privilege, and is actively working to become more diverse and inclusive.

Personally, I have worked to ensure there are more people of color with seats at the table by mentoring future leaders of color at YES Prep and other black men in this work. Jeremy and I also created Brothers on Books, a book club for black men at YES to find mentorship and fellowship. Through this book club, we can create a safe space to have candid discussions based on literature we read and explore what it means to be black men at YES.

When I think about privilege, I am torn between the privilege that has been afforded to me and the jarring power dynamics that determine who gets to have conversations and make decisions in so-called education reform. White people are afforded more voices and seats at the table, making decisions that primarily impact children of color.

It is not lost on me that it is my own privilege that affords me access to a seat at the table. My hope is that by using my role, my voice and my privilege, I can open up dialogue, hearts, minds, opinions, and perceptions. I hope that readers are similarly encouraged to assess their own privileges and determine how they can create positive change.

Recy Benjamin Dunn is YES Prep’s chief operating officer, overseeing operations, district partnerships, and growth strategy for the charter school network. A version of this piece was first published on YES Prep’s blog.

First Person

I’m a Bronx teacher, and I see up close what we all lose when undocumented students live with uncertainty

The author at her school.

It was our high school’s first graduation ceremony. Students were laughing as they lined up in front of the auditorium, their families cheering them on as they entered. We were there to celebrate their accomplishments and their futures.

Next to each student’s name on the back of those 2013 graduation programs was the college the student planned to attend in the fall. Two names, however, had noticeable blanks next to them.

But I was especially proud of these two students, whom I’ll call Sofia and Isabella. These young women started high school as English learners and were diagnosed with learning disabilities. Despite these obstacles, I have never seen two students work so hard.

By the time they graduated, they had two of the highest grade point averages in their class. It would have made sense for them to be college-bound. But neither would go to college. Because of their undocumented status, they did not qualify for financial aid, and, without aid, they could not afford it.

During this year’s State of the Union, I listened to President Trump’s nativist rhetoric and I thought of my students and the thousands of others in New York City who are undocumented. President Trump falsely portrayed them as gang members and killers. The truth is, they came to this country before they even understood politics and borders. They grew up in the U.S. They worked hard in school. In this case, they graduated with honors. They want to be doctors and teachers. Why won’t we let them?

Instead, as Trump works to repeal President Obama’s broader efforts to enfranchise these young people, their futures are plagued by uncertainty and fear. A Supreme Court move just last week means that young people enrolled in the Deferred Action for Childhood Arrivals program remain protected but in limbo.

While Trump and the Congress continue to struggle to find compromise on immigration, we have a unique opportunity here in New York State to help Dreamers. Recently, the Governor Cuomo proposed and the state Assembly passed New York’s DREAM Act, which would allow Sofia, Isabella, and their undocumented peers to access financial aid and pursue higher education on equal footing with their documented peers. Republicans in the New York State Senate, however, have refused to take up this bill, arguing that New York state has to prioritize the needs of American-born middle-class families.

This argument baffles me. In high school, Sofia worked hard to excel in math and science in order to become a radiologist. Isabella was so passionate about becoming a special education teacher that she spent her free periods volunteering with students with severe disabilities at the school co-located in our building.

These young people are Americans. True, they may not have been born here, but they have grown up here and seek to build their futures here. They are integral members of our communities.

By not passing the DREAM Act, it feels like lawmakers have decided that some of the young people that graduate from my school do not deserve the opportunity to achieve their dreams. I applaud the governor’s leadership, in partnership with the New York Assembly, to support Dreamers like Sofia and Isabella and I urge Senate Republicans to reconsider their opposition to the bill.

Today, Sofia and Isabella have been forced to find low-wage jobs, and our community and our state are the poorer for it.

Ilona Nanay is a 10th grade global history teacher and wellness coordinator at Mott Hall V in the Bronx. She is also a member of Educators for Excellence – New York.