Study: Pension plans generally better for teachers than 401K-style accounts
- New research from the University of California, Berkeley Center for Labor Research and Education and the National Institute on Retirement Security, comparing teacher pension plans and 401K-style accounts in six states, concludes that pensions generally provide greater value to teachers and play a critical role in retaining educators.
- The study shows that the average teacher in these states serves 25 years and is well-positioned to benefit from a traditional pension; eight out of 10 teachers in these states will receive a higher, more secure income from pension plans; and that most teachers would have to make substantially higher personal contributions to 401K-style plans in order to receive similar benefits.
- The report recommends that state policymakers consider four key factors as they ponder pension reform measures — the impact on teacher retention, the impact on teacher turnover and retirement income, the effect on the aggregate retirement income of teachers, which could impact consumer spending in the state; and whether there are measures other than shifting to 401K-style plans that could better address equity issues between short-term and long-term teachers.
Retirement plans for teachers are currently receiving considerable attention as some states struggle to recruit and retain teachers, but also to fund schools while also fulfilling pension obligations. One of the largest draws to the teaching profession used to be the generous nature of most state retirement plans. However, since the market crash in 2008, 48 states have made changes to their pension plans as have many companies across the nation.
Many states are now facing unfunded liabilities that range from mildly concerning to nearly catastrophic. These unfunded liabilities are threatening the security of some pension plans and causing states to divert money from other services, including education, to keep pace with funding the plans.
Teachers new to the profession are often short-changed in comparison to the plans of older teachers as states deal with new realities and seek answers. Meanwhile, many teachers are learning that their retirement plans may not provide the security they expect.
Part of this discussion has been the debate between the value of state-held pension plans and 401K-style plans that belong to the employee. This most recent study notes that pension plans (if funded) generally provide better value and security to most teachers in the six states studied. Policymakers must consider this evidence as they decide what is best for teachers and for the financial health of their states. While politicians and courts wrestle with these important decisions, educators would do well to look at their retirement plans as a whole and consider putting more nest eggs in their retirement baskets.
- National Institute on Retirement Security New Study Analyzes Teacher Pension Plans in Six States