September 16, 2015

How State Pension Plans Shortchange Teachers

By Bellwether

Share this article

In two new briefs out today, I attempt to tackle the notion that a defined benefit “pension” is automatically a good retirement plan for teachers. Each brief takes one slice of the 3-million-strong teaching workforce to look at how current pension plans in all 50 states serve short- and medium-term workers, respectively:

  • The first brief looks at the hidden penalties faced by short-term workers, those teachers who won’t stay long enough to qualify for any pension at all. For a variety of personal and professional reasons, about half of all new teachers fall into this group. They’ll leave without any real retirement savings, and they’ll forfeit thousands of dollars their employer contributed on their behalf.
  • The second brief, co-authored with Richard W. Johnson, the Director of the Urban Institute’s Program on Retirement Policy, looks at the negative returns faced by medium- and longer-term teachers. Because of the back-loaded nature of pensions, teachers must stay a very long time in a single pension plan to qualify for a decent benefit. In the median state, teachers must serve 25 years (!) before qualifying for a pension worth more than their own contributions. Instead of benefiting from their pension plans, most teachers are net contributors.

It’s commonly accepted that public-sector workers such as teachers trade lower salaries for higher job security and more generous benefits. But that trade only works well for the small minority of teachers who actually stick around until retirement. Most teachers get the worst of both worlds—they earn lower salaries while they work and they lose out on retirement savings when they leave.
To learn more, read Hidden Penalties and Negative Returns.

More from this topic

Processing...
Thank you! Your subscription has been confirmed. You'll hear from us soon.
ErrorHere