RELEASE: NJ Public School Teachers Should Be Given Pension Plan Options – Adding a Defined Contribution Model Along with the Defined Benefit Model Would Benefit All - Garden State Initiative

PRESS RELEASE

Education, Retirement

RELEASE: NJ Public School Teachers Should Be Given Pension Plan Options – Adding a Defined Contribution Model Along with the Defined Benefit Model Would Benefit All

October 10, 2024

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GSI contributors warn that failure to reevaluate the existing pension system will likely result in ongoing teacher shortages, significant pension underfunding

For Immediate Release
Contact: Audrey Lane

Morristown, October 11, 2024 – The Garden State Initiative (GSI), New Jersey’s leading center-right think tank, released a report today entitled “ABP: A Smarter Retirement Plan for New Jersey Teachers (and Taxpayers),” authored by Danielle Zanzalari, Ph.D., an Assistant Professor of Economics at Seton Hall University, and E.J. McMahon, Adjunct Fellow at the Manhattan Institute for Policy Research and founding Senior Fellow of the Empire Center for Public Policy. It calls for increasing options within New Jersey’s pension system for public school teachers as other states have done, specifically adding a Defined Benefit Model (in addition to the existing Defined Contribution Model).

Zanzalari and McMahon both caution that failing to offer new pension options will likely intensify the ongoing teacher shortage, lead to continued pension underfunding, and further deteriorate New Jersey’s already deeply troubled fiscal outlook.

“New Jersey’s pension system for public school teachers has become the most underfunded in the nation due to years of inadequate contributions and overly optimistic investment return estimates,” said Dr. Zanzalari.  “This issue not only affects current teachers but also discourages potential teachers, who are put off by the lack of flexibility and ability to transfer or carry over benefits in the retirement plan.”

Dr. Zanzalari, who previously served as Vice-President of Credit and Portfolio Risk at Citigroup and as a Financial Economist at the Federal Reserve Bank of Boston, said the current system should shift towards a more modern approach.

“New Jersey teachers of today – and tomorrow – all deserve better choices for their post-retirement planning,” said McMahon, who has authored or co-authored numerous studies, papers, and articles on public pension reform, collective bargaining, population migration, budget trends and tax policy in New York.  “Moving towards a Defined Contribution plan, such as a so-called Alternative Benefit Plan (ABP) like the one already offered to higher education professionals at Rutgers University and other higher education institutions in New Jersey, would offer greater flexibility and portability – as well as more immediate, guaranteed retirement security that young professionals crave.”

McMahon said evidence suggests that in other states where newly hired teachers are given a choice, the take-up rates range from 30% to 75% for a Defined Contribution plan as opposed to a Defined Benefit one.

Dr. Zanzalari pointed out that even Governor Murphy’s own bipartisan task force on public school staff shortages released a report in February 2023 recommending revisiting changes to pension plans and health care coverage for educators. Allowing teachers access to the ABP, whether as a default retirement plan or an option, would allow teachers who want to take time off to raise a family, move, or change jobs, to not lose employer contributions and leave with more retirement savings than the current defined benefit system offers. This can help mitigate teacher shortages.

McMahon also noted that while newly hired teachers opting in the ABP would represent a nominally higher cost to the state in the short term due to the higher required annual employer contribution of 8% to the ABP versus the employer rate of 4.28% to TPAF, over time fewer new enrollees in the TPAF would put less pressure on the pension fund and result in significant savings for taxpayers due to less accruing pension liability.

Garden State Initiative Audrey Lane thanked both Zanzalari and McMahon for agreeing to partner with GSI on the report and echoed their sentiments.

“When you compare the potential retirement income between the Teachers’ Pension and Annuity Plan (TPAF) and an ABP, it’s no surprise young teachers would choose the ABP if given that option,” said Lane.  “The fact of the matter is that a teacher enrolled in an ABP could accumulate more than double the retirement savings compared to a non-vested TPAF member. Right now, unfortunately, if a teacher leaves the profession before vesting due to welcoming a child, caring for elderly parents, or pursuing a different career, they get punished financially.  That’s not right and it should be remedied by policy makers.  A system where contributions would be fixed and delivered on time would be a win-win for teachers and taxpayers now and into the future.”