If a student wants to get a taste of research, then they will probably need a research mentor with a PhD. Failing that, somebody who has published a few good papers -- but such people usually have PhDs! So it's not unreasonable to have PhDs around for student enrichment, even if having a PhD does little to make you better at teaching undergrad material.

The actual administrative reasoning here is probably a combination of the above and "you just can't be an academic without a PhD!".