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Many Teachers Will Forfeit Pension Wealth, Analysis Concludes

Many of the nation's young public school teachers won't be vested in their defined-benefit pension plans or reach the normal age of retirement before they leave the profession—factors that will cost them thousands of dollars in pension wealth, a new analysis concludes.

The report from Bellwether Education Partners, a Washington-based consulting group, contends that states' current defined-benefit pension policies, which pay out according to a fixed formula, are not well aligned with a profession that has grown rapidly younger and more mobile. And that could put teachers at serious financial risk later on in their lives.

For the paper, analysts Chad Aldeman and Andrew Rotherham used "withdrawal" tables—state estimates on teacher-turnover rates—to estimate the percentage of teachers who will earn a pension in every state. They drew on each state's assumptions for female teachers aged 25 who began teaching after Aug. 1, 2013. (Keep in mind that the state formulas are different for male teachers or those of other ages, and these stats would look different for them.)

Based on those assumptions, only 45 percent of teachers in the median state will qualify for payouts, a process that typically takes 5 years. And only 20 percent will reach the normal retirement age of 58.

That's a lot of money left on the table. Many teachers won't even meet the vesting requirements. And for those that don't, states typically allow teachers to take only the contributions they made into the pension plan if they leave the profession, or move to another state. 

"Each year, tens of thousands of teachers will leave the profession with very little retirement savings, making it much harder for them to earn a secure retirement over their careers," the authors note.

To appreciate how different this looks from state to state, consider the following breakouts: 

  • Arizona is the only state that does not have a waiting period for vesting, meaning all teachers will receive some pension benefits.
  • Teachers seem to be losing out on a lot of cash in Maine: Only 14 percent of them vest in the state's plan, and just 2 percent will reach the normal retirement age.
  • Teachers in Rhode Island are most likely to reach the normal retirement age of 55: fully half do.
  • Excepting Arizona, teachers are most likely to vest in Idaho's pension system, with 70 percent doing so.

The report also serves as a good primer about some of the other concerns about defined-benefit pensions, many of which we've written about here at Education Week.

For instance, it notes that most states' pension systems are underfunded, partly because of actuarial assumptions and partly from states' failure to meet their obligations. Also, it highlights that the backloaded nature of the pensions favors veterans over novices; that states are increasingly balancing their pension books on the backs of teachers by extending vesting periods and trimming benefits; and, finally, that the structure of defined-benefit pensions influences who chooses to stay in the profession and who leaves.

The Chicago-based Joyce Foundation provided funding for the report. (The Joyce Foundation also supports Education Week's coverage of the teaching profession.)

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