Nitpicking Hess and West: The Benefits Issue
The American Enterprise Institute released a new report from Rick Hess and Martin West last week called “A Better Bargain: Overhauling Teacher Collective Bargaining for the 21st Century.” Mr. Hess is one of the most widely heard voices on education, and Eduwonk calls West a "rising star" in the field of education research. Together they’ve created a reasonably balanced look at the issues that are inherent in collective bargaining for teaching.
The interplay between unions and schools is a fascinating one to me. Last summer I was on the bargaining team for my union as we negotiated a new contract with my district, and it was a chore. We met about 15 times, I spent better than 100 hours working on writing language and trying to find the common ground, and things were so heated at one point I thought we were going to impasse. After a lot of give and take we were finally able to get done a week before the teachers came back to school. This year I’m a building rep and actively involved at the Uniserv level as well. It’s given me a much better understanding of the entire system.
Anyhow, I’ve been reading the report. It reads very well, as these things go. There are some areas of it that I disagree with, though, so I thought I’d do a series of posts on those. I’ll quote liberally, but you might want to download the PDF and follow along. The first problem: the benefits issue, which begins on page 25.
The first paragraph starts off well enough:
Evaluated solely in financial terms, the benefits teachers receive are modestly more generous than those received by comparable private sector workers. A 2004 Bureau of Labor Statistics Survey indicates that the fringe benefits cost per teacher amounts to 20.2 percent of total salary, as opposed to 17.0 percent in the private sector.
But then things go off track:
The average elementary school district in California spent more than $13,000 on statuatory, health, and welfare benefits per teacher in 2002-2003. When added to an average salary of slightly more than $55,500, these benefits brought the state’s total cost per elementary teacher to more than $68,000.
Notice the shift from talking about the national average to talking about the situation in California. I’ve criticized my union for using California as a stalking horse before (see here), and I’ll criticize the report for the same reason: given the cost of living and the inflation in California, it makes for a lousy comparison to anything when you’re talking money. Note too that in California the benefits actually work out to 23.4% of the salary, higher than the average that was quoted only a sentence before.
In the second paragraph they discuss retirement plans for teachers:
Nearly all public school systems still rely on “defined benefit” retirement plans that provide a formula-driven pension and disproportionately reward educators who stay in one place for 15 or 20 years at the expense of those who depart sooner. For instance, in 2000-01, 15 of the 16 states that constituted the Southern Regional Education Board required newly hired teachers to teach at least five years before vesting in the retirement system, and five states required a period of at least ten years.
There’s a couple of problems here, one extreme and the others niggling:
1) The biggest problem is that most retirement plans are run and managed by the states, not by the individual districts, and therefore lie outside the scope of any collective bargaining agreement. Here in Washington the Teacher Retirement Systems (TRS) are run by the Department of Retirement Services (for the defined benefit portion) and ICMA Retirement Corporation (for the defined contribution). Thus this is not a matter of “overhauling collective bargaining”; it’s something that is clearly a state prerogative.
2) Spinning off of the first point, it’s also something that is well within the power of the states to do. Here in Washington there are now three active TRS plans (1, 2, and 3, naturally). If you’ve been hired after 1996 you’re automatically on TRS3, which provides only 1% of the average of your “average yearly compensation” (AYC) for every year of service credit. As an example consider Mrs. Smith, who is seeking to retire at 60 after 37 years of teaching. Let’s also say that her final AYC was $60,000 a year:
37 years * 1 percent per year * $60,000 = $22,200 per year = $1850 per month
Were Mrs. Smith on TRS1 or 2 she would be able to claim 2% for every year of service credit, which would double her “defined benefit” pay to $44,400.
The folks who count the beans in Olympia decided long ago that TRS 1 and 2 would be too expensive. As a result TRS 3 was born, which cuts the defined benefit severely but requires that you put in a certain portion of your salary to a “defined contribution account,” which is managed by the state but completely your responsibility to fund and choose where the money goes.
I’ll personally testify to the fact that the WEA is a powerful union with a lot of clout. If Washington State could change their retirement system to better fit the needs of today, then why can’t other states?
My ultimate question to Mr. Hess and Mr. West would be—is this enough flexibility, to your mind? The ultimate free market exercise would be to get the state out of the retirement business entirely and demand that teachers instead make their own choices about where the money goes, which would provide the ultimate in flexibility for career-changers. It’s tough to understand just where they want to go with retirement; the motivation is there, but they’re awfully muddy on the execution.
The next paragraph (on page 26) takes on health care. Sadly, it does it very poorly:
There is also mounting evidence to suggest that teacher benefit packages are poorly equipped to deal with the rising cost of health care. The Rhode Island Education Partnership published a 2005 study that compared benefits for public school teachers to those of employees in the state’s private sector. It found that in all of the private sector firms, managers had the discretion to select a health carrier and the design of the health-care plan, while none of the school districts in the study had that capability. More than 85 percent of the private sector contracts required employees to pick up more than 15 percent of their health-care costs, compared with none of the teacher contracts. Seventy-three percent of school districts provided health benefits to retirees at no cost, while none of the private firms did so. In short, it appears that—much like troubled industrial-era firms such as General Motors, the failed steel giants, and major airlines—school districts are sinking enormous sums into gold-plated benefits plans for workers and retirees that may prove unstable.
Health care costs are one of the top things that districts worry about (there was a good Edweek article on the subject here). When we were negotiating last summer the district was very frank in saying that they needed to find a way to keep health costs in line, particularly the “carve-out” that the state charges to pay for retiree health costs.
That said, using the situation in Rhode Island to argue that there’s a national problem is deceiving. Are there no national studies that prove the point Hess and West are trying to make? Doesn’t the NCES or Education Week or somebody have the numbers to show how much is being spent?
But even beyond the total cost argument, why not give teachers a hell of a health-care package? Hess characterizes the packages as “gold-plated” (page 42, and this interview) and argues that since people look more at the base pay than at the benefits we should thus move more money into pay (particularly merit pay and extra pay for high-need areas), but to my mind a much better idea is to talk about the idea of “Total Compensation Package.” If you want to attract “mobile, skilled, college-educated professionals” (p. 41) to teaching, celebrate the fact we have good health care!
In my capacity as a building rep I’ve had dozens of conversations about benefits, and we all know we’re getting a good deal. Cherish that and publicize it, and don’t polarize an entire profession by messing with health care. Hess brushes on this point himself when he talks about the teacher strike in Vermont in 2005 where health care was the biggest issue; can you imagine that on a national scale? Will it make teaching an attractive profession if we’re all on strike and rallying? If you give the NEA a club, can you be all that shocked when they hit you over the head with it?
In my own district there was a proposal two year ago to switch dental plans. Right now there are two options; this would have taken both of those away in favor of a new plan with lower costs. The district put it to a vote of the teachers, and it failed miserably. Had that been forced upon us, the results would have been disastrous. This point is brought up in the last paragraph of the sections:
The response to efforts to rein in such packages often reveals a sense of entitlement among both union leaders and members that will make change difficult.
Part of this, too, is the fact that teaching still attracts a lot of young mothers. There have been 8 pregnancies at my medium-sized elementary school in the last two years, and I know they all appreciate the sick leave packages and medical care that they get. No one will fight harder than a mother who feels her family is threatened, and that’s how many of them would look at an attack on health care.
That was long. Next up we’ll look at what the report says about hourly pay.
The interplay between unions and schools is a fascinating one to me. Last summer I was on the bargaining team for my union as we negotiated a new contract with my district, and it was a chore. We met about 15 times, I spent better than 100 hours working on writing language and trying to find the common ground, and things were so heated at one point I thought we were going to impasse. After a lot of give and take we were finally able to get done a week before the teachers came back to school. This year I’m a building rep and actively involved at the Uniserv level as well. It’s given me a much better understanding of the entire system.
Anyhow, I’ve been reading the report. It reads very well, as these things go. There are some areas of it that I disagree with, though, so I thought I’d do a series of posts on those. I’ll quote liberally, but you might want to download the PDF and follow along. The first problem: the benefits issue, which begins on page 25.
The first paragraph starts off well enough:
Evaluated solely in financial terms, the benefits teachers receive are modestly more generous than those received by comparable private sector workers. A 2004 Bureau of Labor Statistics Survey indicates that the fringe benefits cost per teacher amounts to 20.2 percent of total salary, as opposed to 17.0 percent in the private sector.
But then things go off track:
The average elementary school district in California spent more than $13,000 on statuatory, health, and welfare benefits per teacher in 2002-2003. When added to an average salary of slightly more than $55,500, these benefits brought the state’s total cost per elementary teacher to more than $68,000.
Notice the shift from talking about the national average to talking about the situation in California. I’ve criticized my union for using California as a stalking horse before (see here), and I’ll criticize the report for the same reason: given the cost of living and the inflation in California, it makes for a lousy comparison to anything when you’re talking money. Note too that in California the benefits actually work out to 23.4% of the salary, higher than the average that was quoted only a sentence before.
In the second paragraph they discuss retirement plans for teachers:
Nearly all public school systems still rely on “defined benefit” retirement plans that provide a formula-driven pension and disproportionately reward educators who stay in one place for 15 or 20 years at the expense of those who depart sooner. For instance, in 2000-01, 15 of the 16 states that constituted the Southern Regional Education Board required newly hired teachers to teach at least five years before vesting in the retirement system, and five states required a period of at least ten years.
There’s a couple of problems here, one extreme and the others niggling:
1) The biggest problem is that most retirement plans are run and managed by the states, not by the individual districts, and therefore lie outside the scope of any collective bargaining agreement. Here in Washington the Teacher Retirement Systems (TRS) are run by the Department of Retirement Services (for the defined benefit portion) and ICMA Retirement Corporation (for the defined contribution). Thus this is not a matter of “overhauling collective bargaining”; it’s something that is clearly a state prerogative.
2) Spinning off of the first point, it’s also something that is well within the power of the states to do. Here in Washington there are now three active TRS plans (1, 2, and 3, naturally). If you’ve been hired after 1996 you’re automatically on TRS3, which provides only 1% of the average of your “average yearly compensation” (AYC) for every year of service credit. As an example consider Mrs. Smith, who is seeking to retire at 60 after 37 years of teaching. Let’s also say that her final AYC was $60,000 a year:
37 years * 1 percent per year * $60,000 = $22,200 per year = $1850 per month
Were Mrs. Smith on TRS1 or 2 she would be able to claim 2% for every year of service credit, which would double her “defined benefit” pay to $44,400.
The folks who count the beans in Olympia decided long ago that TRS 1 and 2 would be too expensive. As a result TRS 3 was born, which cuts the defined benefit severely but requires that you put in a certain portion of your salary to a “defined contribution account,” which is managed by the state but completely your responsibility to fund and choose where the money goes.
I’ll personally testify to the fact that the WEA is a powerful union with a lot of clout. If Washington State could change their retirement system to better fit the needs of today, then why can’t other states?
My ultimate question to Mr. Hess and Mr. West would be—is this enough flexibility, to your mind? The ultimate free market exercise would be to get the state out of the retirement business entirely and demand that teachers instead make their own choices about where the money goes, which would provide the ultimate in flexibility for career-changers. It’s tough to understand just where they want to go with retirement; the motivation is there, but they’re awfully muddy on the execution.
The next paragraph (on page 26) takes on health care. Sadly, it does it very poorly:
There is also mounting evidence to suggest that teacher benefit packages are poorly equipped to deal with the rising cost of health care. The Rhode Island Education Partnership published a 2005 study that compared benefits for public school teachers to those of employees in the state’s private sector. It found that in all of the private sector firms, managers had the discretion to select a health carrier and the design of the health-care plan, while none of the school districts in the study had that capability. More than 85 percent of the private sector contracts required employees to pick up more than 15 percent of their health-care costs, compared with none of the teacher contracts. Seventy-three percent of school districts provided health benefits to retirees at no cost, while none of the private firms did so. In short, it appears that—much like troubled industrial-era firms such as General Motors, the failed steel giants, and major airlines—school districts are sinking enormous sums into gold-plated benefits plans for workers and retirees that may prove unstable.
Health care costs are one of the top things that districts worry about (there was a good Edweek article on the subject here). When we were negotiating last summer the district was very frank in saying that they needed to find a way to keep health costs in line, particularly the “carve-out” that the state charges to pay for retiree health costs.
That said, using the situation in Rhode Island to argue that there’s a national problem is deceiving. Are there no national studies that prove the point Hess and West are trying to make? Doesn’t the NCES or Education Week or somebody have the numbers to show how much is being spent?
But even beyond the total cost argument, why not give teachers a hell of a health-care package? Hess characterizes the packages as “gold-plated” (page 42, and this interview) and argues that since people look more at the base pay than at the benefits we should thus move more money into pay (particularly merit pay and extra pay for high-need areas), but to my mind a much better idea is to talk about the idea of “Total Compensation Package.” If you want to attract “mobile, skilled, college-educated professionals” (p. 41) to teaching, celebrate the fact we have good health care!
In my capacity as a building rep I’ve had dozens of conversations about benefits, and we all know we’re getting a good deal. Cherish that and publicize it, and don’t polarize an entire profession by messing with health care. Hess brushes on this point himself when he talks about the teacher strike in Vermont in 2005 where health care was the biggest issue; can you imagine that on a national scale? Will it make teaching an attractive profession if we’re all on strike and rallying? If you give the NEA a club, can you be all that shocked when they hit you over the head with it?
In my own district there was a proposal two year ago to switch dental plans. Right now there are two options; this would have taken both of those away in favor of a new plan with lower costs. The district put it to a vote of the teachers, and it failed miserably. Had that been forced upon us, the results would have been disastrous. This point is brought up in the last paragraph of the sections:
The response to efforts to rein in such packages often reveals a sense of entitlement among both union leaders and members that will make change difficult.
Part of this, too, is the fact that teaching still attracts a lot of young mothers. There have been 8 pregnancies at my medium-sized elementary school in the last two years, and I know they all appreciate the sick leave packages and medical care that they get. No one will fight harder than a mother who feels her family is threatened, and that’s how many of them would look at an attack on health care.
That was long. Next up we’ll look at what the report says about hourly pay.
posted by Ryan at 9:26 AM
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