loan in Kansas, Texas sidesteps all guarantees of interest rates and of
dollar value of annuities. If a Texas teacher dies early, there is a net
cash refund for her estate; while if she dies late there is nothing net
to be refunded. A disability provision is included and some of the
optional forms of settlement common to life insurance are allowed.

Since Kansas school pay rolls total about $18,000,000 a year, a
5 per cent pay roll levy would take some $900,000 a year from the
teacher, and $900,000 from the employing school system. The school
system would also bear the cost of annuities based on non-contributory
“prior service.” In Kansas this might cost $470,000 a year at first,
and gradually diminish. Compared to other public expenditures, this
is not relatively a large sum; but it may look large.

Because of the highly individual character of such reserves, it is
possible to reduce the cost to the state by one-fourth to one-half, by the
simple expedient of a probation period of a few years during which
the beginning teacher does not pay the pay roll tax, and the state con-
sequently has no payments to match for her. A large portion of these
young teachers soon drop out so the state would never contribute any-
thing on their account, but only would contribute on account of the
permanent teaching force.

The Pay-As-You-Go System

The pay-as-you-go method accumulates service credit instead of
cash reserves. It is not individual, but cooperative. Each generation
of employees would pay half of the annuities of its predecessors and
in turn receive its own annuities out of current revenue, half of which
would be contributed by the succeeding generation of employees. In
case of early death there would not be much to refund to the estate;
and the advisability of any such refund is questioned. Annuities would
work out much the same as with reserves, and there could be disability
coverage and optional forms of annuities. Pay-as-you-go resembles
assessment life insurance, with one marked exception: the individual
members of a school retirement system cannot quit paying dues, and
so wreck the system.

The big argument for pay-as-you-go is the relatively low cost, at
least during the early years of operation. It does not call for a lot of
money to lay aside on interest. We estimate that there are, all told,
some 2,000 active teachers with prior service records and ex-teachers
with twenty or more years of service record, now living, who could at
once qualify for the half annuities explained above. This number
would nearly perpetuate itself for some years to come. Let us assume
a standard annuity to be three-fourths of regular pay, and thirty-five
years to be a full time service record, and $900 to be an average
salary; and that these prospective annuitants have averaged 24 years
of service each. Their “half” annuities (as explained above) would
then average $235 each per year; the total cost would then be $470,000
per year. A pay roll levy of 1.4 per cent on the salaries of employees
would raise their half of this cost. A property levy of Soo of a mill
over the state would raise the $235,000 that represents the share of
the employing school system. This means about 50 cents a year from
the average citizen as a tax payer.

But $470,000 is only the first cost. As teachers with credit for full
annuities under the pay roll tax retire, the cost would slowly rise until
after many years it would double itself on that account. Also, as
teachers now active retire with annuities due for service credit of less