Teachers do much better with defined benefit plans than 401(k)s
Most public school teachers working today count on traditional pensions — which guarantee a monthly income based on age, salary and years of service — as their main source of financial security in retirement.
For the 40 percent of teachers nationwide who aren’t covered by Social Security, a “defined benefit” pension plan — in which employer and employee contributions are invested in a professionally managed fund and governed by a board of trustees — provides their only source of guaranteed retirement income.
Now teachers across the country are facing aggressive attacks on their pensions by Republican politicians. In 2010, Michigan placed new teachers into a hybrid plan consisting of a significantly reduced pension and a mandatory 401(k)-type plan. In July, the state’s governor signed a bill that will direct most new teachers into just a 401(k). Pennsylvania recently passed a hybrid pension bill that pushes new teachers into 401(k)-only plans, and similar efforts are underway in other states.
Anti-pension advocates claim that eliminating guaranteed pensions is what’s best for teachers. They base this on dubious research, sponsored by anti-pension groups, that uses high attrition rates among entering teachers to claim that most teachers don’t stay in their jobs long enough to get a decent pension.
While it’s true that 40 percent of new teachers are likely to leave in the first five years, a recent study by the UC Berkeley Labor Center analyzed how long most teachers stay in the classroom in California based on CalSTRS demographic data for active teachers and on detailed actuarial studies on statewide teacher turnover.
The study, funded by CalSTRS, found that three of four teachers currently working in the state will put in at least 20 years before leaving, and half will put in 30 years or more. Nearly 9 out of 10 will stay until at least age 55, and the average classroom teacher will work into their 60s. Anti-pension researchers’ claims to the contrary, most classrooms in the state are occupied by long-term teachers. Data from the National Center for Education Statistics show a majority of current teachers have made it past the period when most new teachers quit.
By the time most active teachers leave service, the Labor Center found, they will be far better off with their pensions than they would have been with 401(k)s. Their teacher longevity data compared current levels of CalSTRS benefits with the yield from an idealized 401(k) and found that 86 percent of working teachers in California will get higher retirement income from their existing defined benefit pension than they would from even a best-case-scenario 401(k).
In fact, a 401(k) plan would provide 40 percent less retirement income for the typical California classroom teacher compared with the current pension, which is consistent with rigorous studies in other states.
Traditional pensions attract recruits to the profession and keep experienced teachers in the classroom. Doing away with pensions will increase teacher attrition and, worse, severely diminish the retirement security of those who have already made a long-term commitment to California children.
>Summarized from an op-ed published by the UC Berkeley Labor Center titled, If someone tells you your kid’s teacher would be better off with a 401(k) than a pension, don’t believe it. Read and share the full-length article here.