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In a released last week, my co-author Paulina Diaz Aguirre and I showed that Louisiana鈥檚 teacher pension system is one of the most expensive 鈥斅燼nd also one of the worst 鈥斅爎etirement plans in the country.

How can a retirement plan be both expensive for employers and meager for workers? That seeming riddle is the key to understanding how the teacher pension plan works in Louisiana, and also how similar teacher retirement plans are working in most other states across the country.

Consider the graph below, which appears as Figure 1 in our paper. The red line shows the state鈥檚 鈥渁ctuarially determined contribution,鈥� that is, how much the state鈥檚 actuaries say districts need to contribute. That figure includes the actuaries鈥� estimate for how much the state鈥檚 retirement benefits are worth and the amount needed to pay down unfunded liabilities that have been racked up over years of over-promising and under-saving.

In Louisiana, that unfunded liability is over $11 billion, and it鈥檚 led to years of dramatically rising pension costs. As a result, districts contribute more than 30 percent of each teacher鈥檚 salary annually toward the state鈥檚 pension plan. The vast majority of this contribution goes toward paying down debt, not toward benefits for current workers.

For most workers, rising employer contributions would mean better retirement benefits. That is not the case for Louisiana鈥檚 teachers, or for other teachers nationwide. The blue line in the graph below represents Louisiana鈥檚 estimates for the value of an average teacher鈥檚 retirement benefit. Louisiana, like , has been cutting retirement benefits over time, and consequently its 鈥渆mployer normal cost鈥� of benefits keeps falling as new workers enter the workforce with worse retirement benefits than their predecessors had.

In a to our piece, the head of the Teachers鈥� Retirement System of Louisiana, Dana Vicknair, took umbrage at our characterization. She noted, without irony, that state legislators 鈥渉ave taken responsible steps since the late 1980s to contain retirement costs.鈥� Vicknair is right that the state has 鈥渃ontained鈥� retirement costs by cutting benefits for teachers, but the total costs to the system have soared dramatically.

As a result, Louisiana鈥檚 school districts are pouring money into the pension system but teachers aren鈥檛 getting much out of it. Going back to the graph, the state pension system estimates the average value of teachers鈥� retirement benefits to be worth only about 4 percent of their salary. This is comparable to a 4 percent employer match on a 401(k) plan, which might sound OK except for two distinctions that put Louisiana teachers in even worse shape.

One, teachers aren鈥檛 actually guaranteed that 4 percent like they would be in a 401(k) plan. Instead, Louisiana鈥檚 pension system is a defined benefit plan, meaning it guarantees workers a certain amount of payments in retirement depending on their salary and length of service. Some teachers do much better under this arrangement than others, and the 4 percent represents an average spread out across all of them; many get much less.

In fact, nearly half of all Louisiana teachers fail to stay long enough to qualify for any retirement benefits at all, and the plan uses a back-loaded formula that disproportionately rewards the small fraction of teachers who remain on the job for more than 25 years. Just 1 percent of teachers will stay in the classroom long enough to earn the maximum retirement benefit.

And two, unlike all workers in the private sector, Louisiana has chosen not to offer its teachers Social Security coverage. Due to a , state and local governments were given the option over whether they wanted to enroll their workers in Social Security, and Louisiana is one of 15 states that do not cover all their teachers. That decision leaves teachers particularly vulnerable to a bad retirement plan like the one the state is currently offering. Once you factor in Louisiana teachers鈥� lack of Social Security, their retirement coverage is one of the worst in the country.

Luckily, Louisiana has better options. There鈥檚 not much juice to squeeze out of the current system 鈥� the debt has to be paid regardless, and a 4 percent retirement contribution doesn鈥檛 leave much with which to work. But there are still cost-neutral ways, like allowing teachers to join the same retirement system currently offered to the state鈥檚 higher-education employees, that would give all teachers fair, portable retirement benefits. Perhaps even more important, those alternatives would prevent the state from accumulating more debt in the future.

As we note in our report, Louisiana school districts have been cutting their expenditures on instructional programs, textbooks and other school supplies, and special education services, at least partially due to rising pension costs. Without reform, those trends are likely to continue.

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