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The Problem With Teacher Pensions

Five ways teachers are getting fleeced

March 30, 2016

Ting Yu

Ting Yu

Education has no shortage of controversy these days, so we get why the words “teacher retirement benefits” don’t exactly incite revolt. But they should.

America’s 3.3 million public school teachers—the country’s largest group of college-educated workers—are routinely told to overlook low salaries for the promise of generous retirement pensions. The reality is that fewer than one in five teachers qualifies for a full pension, and the vast majority of teachers either won’t qualify at all, or won’t end up breaking even.

According to a recent report, “Negative Returns: How State Pensions Shortchange Teachers,” by Bellwether’s Chad Aldeman and Richard W. Johnson, three-quarters of new teachers (around age 25) will actually pay in more than they get out of their pension plans. Even career teachers endure severe financial penalties for common life events like moving to a new state or taking time off from the classroom.

1. If you teach fewer than 25 consecutive years in the same state, you’re probably getting fleeced.

Contributing to teacher pension plans is mandatory in all but four states. Yet in half of state pension plans, it takes at least 25 years of service for a teacher just to break even. Most teachers end up being net contributors, floating an outmoded pension system designed to benefit a small and ever-shrinking group of teachers: those who stay in the same state or school district for 30 years or more. 

2. Nine years of teaching won’t get you much.

In most states, you don’t qualify for a cent of employer-financed benefit if you teach fewer than 5 or 10 years. Such lengthy vesting periods are illegal in the private sector but don’t apply to public sector pensions. Bellwether’s report estimates that less than 45 percent of teachers meet the vesting requirements for even minimal benefits.

3. New teachers get burned the most.

Over time, the deck has been stacked against new teachers earning pension benefits. Thanks to the economic recession of 2007-09, 12 states lengthened their vesting periods. Nearly two-thirds of Illinois’ new teachers won’t meet its new 10-year vesting requirement. Even more outrageously, Massachusetts teachers hired after July 1, 2001, will never receive a pension worth more than their own contributions plus interest. States are essentially taking no-interest loans from the pockets of younger teachers—many of whom are still paying off student loans —who will never reap the rewards.

4. Even career teachers face stiff penalties.

Many states penalize teachers for moving across state and, in some cases, district lines—amounting to hundreds of thousands of lost dollars for an individual teacher. A life-long teacher can lose more than half of her pension wealth with a single move. For those who move multiple times, the losses are compounded.

5. Forty percent of public school teachers don’t participate in Social Security.

You read that right. More than a million teachers across 15 states—Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas—are not covered by the most fundamental retirement benefit guaranteed to every private sector worker. And many of them don’t realize it.

Infographic with the headline, "More problems with teacher pensions." Four squares of data are shown: 17% the average percentage of a teacher's salary school districts take; less than 1 in 10 the odds a teacher will earn a secure retirement benefit; more than 30 years before your pension is worth more than you paid in plus interest; Oregon and Utah are the only two states where teachers have better than coin-toss odds of breaking even on their pensions."

What You Should Do About It

Save for retirement outside the pension system.

Unless you are teaching in Arizona, which has no vesting requirement, or in Florida, Washington, Michigan, or Ohio—the only four states that give teachers a choice between state pension plans and more portable 401(k)-style plans that allow teachers to get back what they paid in regardless of whether they move across state lines or change jobs. Or, when you leave a teaching job, take your contributions plus interest, if you can, and roll them into a savings plan.

Speak up for your rights.

Who negotiates the teachers’ contract where you work? Who influences state decisions? Speak up for your right to join Social Security, choose a portable pension plan, or start earning substantial retirement benefits at the beginning of your teaching career. This could mean advocating with your union, in states where unions have collective bargaining rights, or directing your efforts at state legislators. Veteran teachers can help you get up to speed on rules and representation in your district and state. “In the long term,” Aldeman says, “teachers need to advocate for a choice of plans, if not an entirely new system.”

Get educated.

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