Pension text blocks
James V. Shuls

In recent days, some Missouri teachers have been spreading a viral Facebook post that makes a number of inaccurate assertions. I have copied a version of the post below. Let’s fact check all the claims made in this post.

Dear Missouri teachers and all Missouri citizens:

As a Missouri public-school employee, I don’t pay into Social Security; I pay into the Public School Retirement System (PSRS) pension—to the tune of 13-15% of my salary.

The Missouri pension system for public employees REPLACES Social Security (i.e., I will never get Social Security or my spouse’s SS); that’s why the word “pension” misleads a lot of people.

We don’t get both.

Last month, a Missouri state representative from Nixa, MO, introduced a bill to change the current funding structure for teacher pensions to a defined contribution rather than a defined benefit plan, claiming that taxpayers might need to pay for any shortfalls in future years should the funds not be adequate. THIS IS NOT CORRECT.

Missouri’s PSRS has long been admired nation-wide as one of the MOST SOLVENT pension plans IN THE NATION.

We (teachers) are not the enemy; we are not the problem. Missouri’s financial problems should not be balanced on the backs of teachers who have paid into the system for their entire careers. The Missouri government set the rules. We have followed them. They have not. Now, they want to blame teachers for the State’s money woes, and steal from teachers’ retirement again!

Please call your state reps to support teacher-retirement funding and not changing it!

PLEASE.

Claim 1: “I pay into Public School Retirement System (PSRS) pension— to the tune of 13-15% of my salary.”

MOSTLY TRUE

Since 2012, Missouri teachers have paid 14.5 percent of their salary into the public school retirement system. This is matched by another 14.5 percent from the employer. It rose steeply from around 10 percent in the early 2000s in an effort to address unfunded liabilities (See Figure 3 here).

Claim 2: “The Missouri pension system for public employees REPLACES Social Security (i.e., I will never get Social Security or my spouse’s SS); that’s why the word “pension” misleads a lot of people.”

MIX OF TRUE AND FALSE

Missouri teachers do not pay into Social Security, but they may still be eligible for a benefit. According to the PSRS website, teachers “may qualify for Social Security benefits if you have 40 units (10 years) of Social Security-covered employment. You may also be eligible for benefits from Social Security through your spouse or ex-spouse (living or deceased).”

Claim 3: “Last month, a Missouri state representative from Nixa, MO, introduced a bill to change the current funding structure for teacher pensions to a defined contribution rather than a defined benefit plan…”

FALSE

House Bill 864 does not change the structure of current defined-benefit pension system for anyone in the system. In fact, it sets the current PSRS system as the default option for all incoming teachers. It would simply allow teachers the option of choosing a defined-contribution (DC) plan if they want to. Teachers who opt into the DC plan could chose to contribute between 3 and 50 percent of their salary into their own individual retirement account. The school district would be required to contribute 5 percent. If teachers wanted to stay with their traditional plan, they could. HB 864 would just give them more options.

This is a very important point that is worth repeating. The current bill, which has not even been referred to a committee and has virtually no chance of passing, would not change anything for anyone unless the individual teacher chose to opt into the DC plan. (To find out why some teachers might choose a DC plan, click here.) Florida has a DC option and roughly a quarter of teachers choose this plan.

Claim 4: “Missouri’s PSRS has long been admired nation-wide as one of the MOST SOLVENT pension plans IN THE NATION.”

MIX OF TRUE AND FALSE

Yes, it is true that PSRS is rated as one of the best funded pension systems in the nation. According to PSRS, PSRS was 84 percent funded as of June 30, 2018. This amounts to over $7.4 billion in unfunded liabilities. According to an analysis by Rebecca Sielman, an actuary at Milliman, this puts PSRS in the top quarter in terms of funded ratios among the 100 largest U.S. pension plans. This fact, however, says more about the sad state of other systems.

It should be noted that these comparisons are slightly suspect as they are based on plan reporting, and plans use very different assumptions. In determining that PSRS is 84 percent funded, the plan uses a high assumed discount rate of 7.75 percent to calculate liabilities. The median discount rate was 7.5 percent. That difference may not sound like much, but when you are talking about compound interest on billions of dollars, it adds up quickly. As Sielman writes, “A relatively small change in the discount rate can have a significant impact on the Total Pension Liability.”    

In an analysis for the Show-Me Institute, economist Andrew Biggs shows that if PSRS used a Corporate Bond Yield rate of 4.26 percent, the plan would be 52 percent funded and would have over $27.7 billion in unfunded liabilities.

It's important to understand that not all of the money that is contributed to a teacher's pension actually ends up funding the pension. Teachers contribute 14.5 percent of their pay into the pension, and their employer adds an equivalent amount, so the amount that goes into the pension is equal to 29 percent of the teacher's salary. Only 17.44 percent is required, according to plan actuaries, to pay for the teacher's retirement benefits. This means nearly two-fifths of the contributions are used to pay for unfunded liabilities (see p. 106 here).

Claim 5: “Missouri’s financial problems should not be balanced on the backs of teachers who have paid into the system for their entire careers. The Missouri government set the rules. We have followed them. They have not. Now, they want to blame teachers for the State’s money woes, and steal from teachers’ retirement again!”

COMPLETE NONSENSE

Ok there isn’t really a claim here, but there is a completely nonsensical assertion that this bill would somehow take money away. A version of this myth has been repeated numerous times—they want to take our pension money to pay for roads is a popular one. This bill (and every other pension reform bill that I have ever seen in Missouri) would not touch teacher contributions to the system. There is absolutely no mechanism for the state to take that money.

CONCLUSION

Teachers who spread viral posts with completely inaccurate information do not reflect well on their profession. Why are you trying to scare your colleagues? And have you thought of the unintended consequences?

My advice, teacher to teacher, is the next time you see a viral post like the one above and feel compelled to do something, consider this: read the actual bill, think critically, and do not blindly share hyperbolic posts filled with factual errors.

 

About the Author

James Shuls
James Shuls
Distinguished Fellow of Education Policy

James V. Shuls is an assistant professor of educational leadership and policy studies at the University of Missouri–St. Louis and Distinguished Fellow in Education Policy at the Show-Me Institute.