Teacher Pensions in West Virginia

How They Affect Teachers & Taxpayers

by Martin Lueken, Ph.D.

Introduction

The Coronavirus pandemic has tested and stressed public school systems everywhere and compelled
parents, education leaders, and lawmakers to reexamine the resiliency of these institutions. In response
to this crisis, West Virginia passed the Hope Scholarship Program and leads a stream of states this
year that enacted new educational choice programs or expanded currently existing programs. Although
expanding educational opportunities for families is a necessary condition for improving how the
state provides K-12 education, an important question relates to another area of the education system
and directly to teachers, who remain very important to educating students enrolled in schools: do
these systems work for all teachers? The answer depends where you look, but one important yet often
overlooked area is retirement benefits.

There are two key issues that face teachers and the retirement systems they enroll in: how states fund
retirement plans and how benefits are distributed among different groups of teachers.
The state took efforts over the last couple decades to improve the plan’s financial footing by making up
payments to pay down unfunded liabilities. While steps taken were difficult and commendable, they likely
won’t be enough. They also come at a cost to teachers and students who entered the picture long after
funding was a problem and highlight equity concerns that often afflict defined benefit plans.

How these plans distribute benefits across different teachers deserves more attention. Given that
incentives underlying these plans affect retirement behavior, it deserves a closer look. This paper analyzes
West Virginia’s pension plan for teachers from a labor market perspective, how pension benefits accrue
for West Virginia teachers, and how their underlying incentives are structured to influence arbitrary
points of separation.

This paper is organized as follows: the next section discusses how defined benefit plans work, costs
associated with the teachers’ pension plan, and the distribution of the plan’s costs. Then the paper
shows how pension benefits accrue under the current plan for a representative teacher. It finishes with a
discussion about policy options and offers concluding remarks.