At a time when pensions for teachers are under attack, a national study has come out affirming that defined-benefit plans not only benefit teachers and schools, they make good public policy.
“This latest study really reconfirms what we’ve known for a long time. Pensions earned over three decades, while modest, are an important part of teacher compensation. Secure retirement benefits help teachers stay on the job and help us keep experienced teachers in our schools,” says Jennifer Baker, CTA’s retirement legislative advocate.
This latest report from the National Institute on Retirement Security, “Win- Win: Pensions Efficiently Serve American Schools and Teachers,” re-emphasizes the importance of a defined-benefit plan — a pension — as an incentive for teachers to stay in the profession. With a growing shortage of teachers, pensions are a significant factor in recruiting new teachers and retaining experienced teaching staff.
“This financial incentive is all the more important given that wages have eroded for teachers, which makes it harder for schools to keep experienced teachers,” says report author Christian Weller, professor of public policy at the University of Massachusetts Boston. “Schools and students benefit because teachers become better at their jobs with more experience.”
Teachers in the United States are paid on average as much as 60 percent less than similarly educated professionals across the globe, which is why it’s crucial they have a sound retirement plan.
A defined-benefit plan is a retirement plan sponsored by the employer, where employee benefits are calculated using a formula that factors in length of employment and salary history, among other things. Research finds that pensions:
- Create meaningful incentives for effective teachers to stay on the job. The longer a teacher stays on the job, the larger the annual retirement benefit they earn each year.
- Benefit student performance and the U.S. education system, because experienced teachers are more productive and effective.
- Boost retirement incomes among lower-income and middle-income teachers. Automatic participation in a pension means that highly unequal tax incentives for retirement savings have only a limited impact on teachers’ retirement savings.
- Deliver lifetime income benefits more efficiently than defined-contribution retirement accounts, like 401(k)s. Each dollar saved in a defined-benefit pension provides nearly twice the amount of retirement income as money invested in an individual savings plan because of lower costs and sharing key risks.
The report can be found on the NIRS website (nirsonline.org).
NEA has also made three important fact sheets on pensions available for members. They can be downloaded at nea.org/home/31934.htm.
- “New Educators: Three Things You Need to Know Now About Retirement!”
- “The Intersection of the Teacher Pipeline, Pensions, and Teacher Retention.”
- “Pensions Work Best for Our Schools, Communities and Educators.” For more about pensions and retirement planning, see CTAinvest.org.
Most K-14 educators in California belong to the California State Teachers’ Retirement System (CalSTRS), the second-largest public retirement fund in the country. Over the life of their careers, CalSTRS members contribute about 10 percent of their monthly salary to help finance their retirement. Employers and the state also contribute, while the returns garnered by CalSTRS’ investments do the rest. CalSTRS benefits, along with savings and supplementary 403(b) retirement plans, all contribute to a secure retirement for California teachers.
Defined-benefit payments also have been a powerful economic engine in California’s 58 counties and have a trickle-down effect on the local, state and national economies as well. Several counties depend almost entirely on the spending of retirees. And thousands of jobs have been created due to the economic activity of retirement benefit plans.
In recent years, public employee pensions such as CalSTRS have come under attack, largely by Wall Street. The elimination of public pension systems would be a huge boon for financial planners and companies that stand to invest that money while making profit off the fees they can charge individuals. Also, without institutional investors like CalSTRS — the biggest champions of regulatory and executive compensation reform of the financial industry — there would be little oversight of corporate behavior and no guarantee that money would go back into state and national economies as it does now.