Better Pay, Fairer Pensions For Los Angeles Teachers

Los Angeles and other urban public school districts across the country constantly struggle to attract and retain high quality teachers. Calls for additional taxpayer funding to raise teacher salaries are common. Thus far, however, little consideration has been given to the possibility of redistributing existing teacher compensation dollars in a manner that prospective teachers might find attractive.

In a new report for the Manhattan Institute, we illustrate how Los Angeles could offer its teachers a more desirable compensation package with considerably higher take-home salaries and improved retirement benefits at no extra cost to taxpayers.

The current compensation package offered by the district allocates a large share of compensation to retirement. The district pays approximately 18.5 percent of a teacher’s salary for retirement benefits. That’s remarkably high, even considering that L.A.’s teachers do not participate in Social Security. It’s far more than the 10.6 percent of earnings (including Social Security) that is the average for similarly trained professionals working in the private sector.

Our calculations show that the district could give every teacher a 7.25 percent raise by shifting more compensation to salary and away from deferred compensation more closely matching what is commonly offered in the private sector.

Forcing middle class professionals such as teachers to invest so heavily in retirement at the expense of take-home pay has the potential to have a significant negative impact on recruitment and retention. Retirement security is important, but salary is a larger driver in the labor market, even for teachers.

The reforms we modeled would maintain a level of savings that, along with employee contributions, would provide a secure retirement, but it would shift more money into current salary where the district will get more bang for its buck. Many current and prospective teachers would strongly prefer the better quality of life that would come with higher salaries today.

The reforms we modeled would not only put more money in teachers’ paychecks, it would also give more than 60 percent of L.A.’s teachers greater retirement security. That’s because teachers would earn retirement benefits smoothly year after year, rather than having to wait for a dramatic increase in benefits just before retirement.

A large share of L.A.’s teachers are expected to leave before reaching normal retirement ages where the system’s benefit is greatest. To illustrate just how backloaded the current system is, consider two teachers who begin working in L.A. schools at the age of 25. One teaches until the age of 65 when the value of her benefits would be at their maximum. She leaves with the equivalent of $734,785, minus her own contributions. The other teacher decides to leave after 20 years in the district and he has only $141,762 in total retirement compensation. Under our model, that hypothetical teacher would earn $230,897 in employer-provided retirement savings during her first 20 years, were the district to maintain its ratio of deferred to current compensation.

The teachers in Los Angeles are professionals and they deserve to be appropriately compensated for their work.

We have developed a plan that would allow the Los Angeles Unified School District to give teachers a more desirable compensation package with considerably higher take-home salaries and improved retirement benefits - all without costing taxpayers a penny more. Making these changes would not only reward teachers, but would also positively affect student achievement by improving the district’s ability to recruit and retain the best teachers on the market.