Teacher Pensions Blog

  • According to an L.A. Times story earlier this week, a Los Angeles charter school is trying to avoid retiree healthcare costs by paying its veteran teachers to leave the school and return to the Los Angeles Unified School District (LAUSD). El Camino Real Charter High School is offering its veteran teachers up to $30,000 if they retire with the district rather than the charter school.

    There’s clearly something unsettling about the incentives here, and the story spurs several questions around benefit accessibility, cost, and responsibility:

    • How well is the current retiree healthcare structure actually benefitting employers and employees? El Camino Real is acting in its own financial interests by offering buyouts, but it also suggests that the financial incentives have become so bad that they’re willing to pay their most experienced teachers to leave.  LAUSD may attract these veteran employees, but then will need to foot the bill for retiree healthcare benefits (and pension contributions). In the article, LAUSD officials spoke about creating rules against this sort of practice. Would that restrict their ability to hire veterans? Should districts make decisions about who to hire based on retiree healthcare obligations?
    • Why was an individual charter promising retiree healthcare at all? Unlike regular healthcare costs, which are somewhat more predictable—they may rise in a given year, but are still a function of the current workforce—health benefits for retirees are a long-term obligation. In that sense, they’re uncertain, because costs may balloon rapidly if retirees live longer or incur unprojected expenses. Retiree health insurance in California is currently collectively bargained at the local district level, and El Camino is just now realizing that they bargained for more than they could afford. Providing its own benefits package could distinguish the charter school, but in this instance it seems to have become more of a burden than a gain. 
    • Who should be responsible for funding retiree healthcare? LAUSD is a larger school district and can presumably better cover the uncertain costs than an individual charter school. The state may be even arguably better equipped to fund benefits. CalSTRS, the state pension system, has decided not to wade into retiree health insurance, and says it may consider financing retiree health benefits if the funding becomes available (but this seems unlikely). Having a state provider could centralize retiree health benefits and prevent smaller school districts or charters from having to fund benefits on their own.
    • But it could also make things more complicated. While not on the same scale, retiree healthcare faces similar underfunding issues as pension benefits. And the state is already saddled with massive unpaid pension debt, now totaling $74 billion.
    • The other elephant in the room is to what extent retiree healthcare coverage should be a part of a teacher’s compensation package. For better or worse, most employers don’t offer any form of retiree health benefits; workers need to independently figure how to afford health care in retirement, usually through a combination of private insurance and Medicare.   

    This story seems to spur more questions than answers, but it’s a signal of a strange set of incentives that California has created for its teachers and schools.  

  • Consider two hypothetical teachers with nearly identical resumes:

    Ms. Early is 65 years old, and she taught for 20 years in our public schools. She began her career at age 25, but by 45 decided it was time to try something else. At the time she left teaching, her salary was $33,086, the equivalent of $50,000 today. She's now ready to retire and, because she taught for 20 years, she's eligible for a pension that will be paid out in monthly installments for the rest of her life. Her pension formula will be based on her years of experience (20) times a multiplier factor (2 percent) times her annual salary of $33,086. Her pension will be worth $13,234 a year.

    Like Ms. Early, Ms. Late is also 65 years old, and she also taught for 20 years in our public schools. But Ms. Late tried various other careers before trying her hand at teaching at age 45. Her salary this year, her last year of teaching, was $50,000. She's now ready to retire and, because she taught for 20 years, she's eligible for a pension that will be paid out in monthly installments for the rest of her life. Her pension formula will be based on her years of experience (20) times a multiplier factor (2 percent) times her annual salary of $50,000. Her pension today will be worth $20,000 per year.

    These two teachers are identical in all ways except for one critical difference: the age at which they began teaching. And yet, that difference will mean Ms. Late will qualify for a pension that's 50 percent larger than Ms. Early's. Over a full retirement--65-year-old women today are projected to live another 21.5 years, on average--Ms. Late will qualify for retirement benefits worth almost $140,000 more (in today's dollars) than Ms. Early.

    The explanation here is pretty straightforward. In every state, a teacher's pension amount is based on her final salary in the last year she worked, regardless of when that happened to be. (Social Security, in contrast, automatically adjusts prior years' earnings.) This is a key reason why teacher pension plans are so back-loaded, and it means that pensions reward later-career service much more heavily than early-career service.

    This situation becomes even more pronounced when looking at teachers with shorter careers. Instead of two hypothetical teachers, each working 20 years, imagine four teachers who each teach for 10 years. One teaches from age 25-35, a second from 35-45, a third from 45-55, and a fourth from age 55-65. All four teach the same number of years and earn equivalent salaries (in present dollars). But because of this timing issue, the fourth teacher would qualify for a pension worth more than twice what the first teacher would earn.

    All of this creates some strange risks and rewards. Teachers who start at younger ages have the potential to earn much larger pensions by the time they retire, but, because they have more years to go, they're also much less likely to make it that long. Younger teachers also face different calculations about what to do with their pension. For a 35-year-old leaving the profession, it may make sense to cash out a pension and roll it over into some interest-bearing savings. Otherwise, the money will just sit there and not earn interest. For someone closer to retirement, the pension may be a better deal. Teachers must know how pensions work in order to maximize their retirement saving in their unique situations. 

    From a public policy standpoint, it doesn't make a whole lot of sense to prioritize one year of teaching over another. But that's exactly what teacher pensions do. 

    Want to learn more? Take three minutes out of your day to watch the explainer video below: 


  • Interested in data on the average teacher pension in your state?  See the chart below for data on the average teacher pension in your state. But before you do, here are some caveats to what you're looking at:

    1.  Not all teachers qualify for a pension. States can and do set relatively high minimum service requirements, ranging from five to 10 years, and over half of incoming teachers won’t qualify for retirement benefits in their state. Leaving these teachers out of the overall pool obscures who gets counted in the “average pension.” 

    2. Of the teachers who do qualify for benefits, their benefits will vary widely. The statistical average, or mean, hides the fact that only a small percentage of incoming teachers will receive a full career pension at retirement, while many, many more get only a small amount. Also, teachers in 15 states aren't covered by Social Security; pensions in these states tend to be larger to make up for this fact.                              

    3.  These amounts only tell us what a teacher earns at retirement—not what she contributed to her state or local system. The averages include many teachers who qualify for some pension, but those pensions may be worth less than the value of the teacher's own contributions. 

    Now onto the data. The first column shows the “average pension” for newly retired teachers from the past ten years in each state. The next column shows, amongst all newly retired teachers, what the median retiree earns. The last column show the estimated percentage of new teachers who will actually receive a pension. The data come from each state's annual comprehensive financial report.  

    In Maryland, for example, the “average pension” for new teachers is $35,000. But the median pension for new retirees is just $20,544, meaning half of all new retirees earn less than that amount. Moreover, 57 percent of new Maryland teachers are expected to leave the system before qualifying for any benefits at retirement. They're not included in the pension data at all. 

    Knowing what your state’s “average pension” can be interesting. But this amount doesn’t necessarily reflect the amount that many teachers actually earn. With those caveats in mind, here are the data: 


    Average Teacher Pension by State


     Average Benefit for New Retirees

     Median Benefit for New Retirees

    Percentage of New Teachers Who QUALIFY FOR a Pension


     $   20,721.89

     $   19,728.00


    Alaska (DB plan)





     $   20,508.00

     $   20,328.00



     $   21,067.00

     $   17,784.00



     $   43,308.00

     $   40,008.00



     $   37,452.00

     $   29,376.00







     $   20,485.00

     $   25,440.00


    Distrct of Columbia

     $   63,468.00

     $   48,420.00



     $   19,765.00

     $   18,198.00



     $   34,946.00

     $   22,835.16



     $   14,964.00

     $   30,252.00



     $   17,043.00

     $   13,992.00



    $  46,513

     $   52,188.00


    Indiana (Pre1996 Fund)

     $   17,436.00

     $   21,516.00


    Indiana (1996 Fund)

     $   16,392.00

     $   12,492.00



     $   19,704.00

     $   15,180.00



     $   12,929.00




     $   34,685.00

     $   36,330.00



     $   23,828.00

     $   25,836.00



     $   20,333.00

     $   24,312.00



     $   34,956.00

     $   20,544.00



     $   38,637.00




     $   21,348.00

     $    4,680.00


    Minnesota (All retirees)


     $   20,283.00



     $   18,764.25

     $   17,064.00



     $   41,344.52

     $   47,460.00



     $   21,153.00

     $   27,708.00



     $   22,590.15

     $   20,288.39



     $   30,468.00

     $   27,036.00


    New Hampshire

     $   21,355.00

     $    7,020.00


    New Jersey

     $   40,104.00



    New Mexico

     $   21,165.96

     $   19,765.68


    New York

     $   44,383.40

     $   46,920.00


    North Carolina

     $   18,443.00



    North Dakota

     $   31,596.00

     $   57,413.00



     $   46,620.00

     $   57,696.00



     $   19,846.00




     $   28,320.00

     $   28,296.00



     $   24,603.00

     $   23,664.00


    Rhode Island

     $   44,953.00



    South Carolina

     $   19,630.00

     $   26,287.80


    South Dakota

     $   18,717.00

     $   18,120.00



     $   18,612.00

     $   10,668.00



     $   44,556.00



    Utah (noncontributory)*

     $   21,063.00

     $   19,512.00


    Utah (contributory)*

     $   15,996.00

     $   25,020.00



     $   18,230.18

     $   27,245.00



     $   21,962.50

     $   18,708.48


    Washington (PERS 1)

     $   28,203.65

     $   26,529.84


    Washington (PERS 2)

     $   20,775.48

     $   18,311.28


    West Virginia

     $   19,165.69

     $   23,364.00



     $   22,911.00

     $   13,392.00



     $   17,556.00



    Source: Data collected from state comprehensive annual financial reports. Teacher state plans were used unless otherwise noted.

    **Out of all retirees.

    *Average for all participants plan; includes teachers and other state employees.

    Last updated 4/13/16. 

  • Many people are surprised to hear that not all workers are covered by Social Security. But for the 1.2 million public school teachers who remain without coverage, this remains a daily reality. Teachers in California, Texas, Illinois, Massachusetts, and Connecticut, to name just a few of the non-participating states, neither pay into nor receive Social Security.

    To deal with this spotted landscape, Congress created two somewhat obscure policies that affect workers and families who split their time in and out of Social Security. These teachers face two provisions on any Social Security benefits they may have earned outside of the classroom: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). 

    Both provisions were passed to align with Social Security’s design. Social Security is based on a progressive benefit formula, meaning lower-income workers receive a greater proportion of benefits relative to their income than higher-income workers do. Social Security collects taxes from employee each year based on their earnings, and then at retirement age, the worker’s Social Security benefit is based on those contributions. But teachers who don’t participate in Social Security don’t contribute either. When they retire, they will appear to Social Security to have a lower income, and in turn, qualify for a larger, progressive benefit. 

    To give a real-world example, consider a California science teacher who worked half her career as an engineer and half as a teacher. As an engineer, she and her employer both paid into Social Security, but during her years as a public school teacher in California, neither she nor her district employer paid into Social Security. When she retires, she’ll have contributions for her time as an engineer and a series of zeros for her years in the classroom. She’ll therefore appear to have an income much lower than what she actually earned. 

    Without WEP, the Social Security formula would try to make up for low income and provide her a proportionally more generous benefit. Under WEP, however, her individual benefits are reduced so they eliminate this initial advantage. As a result, the teacher may face a maximum reduction equal to half of her pension (up to $413 monthly or almost $5,000 annually). If she’s married and has a spouse who paid into Social Security, her spousal benefits (if she chooses to collect) are reduced by an amount equal to two-thirds her teacher pension under GPO. The WEP and GPO provisions are meant to even out any advantage a pensioned worker may receive from non-coverage. 

    This may work out for a teacher with an ample pension, but for the majority of teachers who will more likely end up of with partial pension, further truncating Social Security benefits will only make their retirement more precarious. Unfortunately, many teachers do not realize that their benefits will be reduced at retirement and do not plan accordingly. Placing all teachers in Social Security, while also providing teachers with adequate state-sponsored retirement plans, would enable more teachers to be prepared for retirement.   

    To learn more about teachers and Social Security coverage, see our Resources page here

  • There's a common, widespread belief that the shift from defined benefit pension plans to defined contribution plans in the private sector led to a decline in retirement savings. This is a myth. In fact, there were no "good ol' days" of retirement saving. 

    The myth starts simply enough. It's certainly true that private companies made a dramatic shift in the 1980's and 90's away from pension plans and toward 401k-style defined contribution plans. It's also true that, historically, pension plans were better investors than individuals (although that edge is diminishing).

    It's also temping  to conclude that our awful saving habits must have been caused by something. This is a trap that Dana Goldstein fell into last week. In a column for Viceshe concluded that, "the shift away from pensions has decimated Americans' retirement security." Her evidence for this claim is a link to a Guardian article showing that many people have 401k account balances worth less than $100,000. This is, indeed, not a very good outcome. 

    But what Goldstein misses (and she's far from alone in making this claim) is a smoking gun of causality. It turns out that we've NEVER been good at saving for retirement, and Ye Olde Private Pension Plans plans weren't that great either. It's easy to forget now, but a rash of high-profile bankruptcies and rampant misconduct in the private sector led to the passage of the Employee Retirement Income Security Act (ERISA) in 1974, a law that mandated protections for workers and created the Pension Benefit Guaranty Corporation (PBGC) to ensure that workers received some retirement income when their former employers went bankrupt. (We still have no equivalent protections in the public sector.) Ironically, ERISA itself is often blamed for the shift away from pension plans, even though it was seeking to clean up some of the worst offenses. 

    But even beyond high-profile failures, private-sector pensions were not providing retirement security to the masses. Like public-sector plans today but to an even greater extent, they were back-loaded and required workers to stay for very long periods of time. And without any federal protections, they often featured very long vesting periods of 10 or 20 years before a worker could qualify for a pension.

    Most workers did not qualify for a pension at all, and there were large disparities by income. In 1980-81, before the mass exodus away from pension plans, only 27 percent of new retirees qualified for a private-sector pension. Only 3 percent of workers in the lowest-poverty quartile received a private pension, compared to 51 percent among the wealthiest quartile. 

    These numbers have not changed much over time. Among Baby Boomers retiring today--who would be the most likely group to have a pension--the typical retiree cannot rely on a private pension as the sole source of retirement security. Among retirees in 2012 aged 65 or older, only 26.8 percent received a private pension or annuity, and large gaps across income levels remain. (Paragraph updated on 4/18.)

    So while it's tempting to look for blame as to why Americans are bad savers, the truth is private-sector pensions were never providing retirement security to the masses.

    This is even more evident when you look at the issue on a historical basis. The graph below comes from the Boston College Center for Retirement Research. It shows the ratio of wealth to income by age across the last three decades. Each colored line represents one year, a snapshot in time. If the death of defined benefit pensions were really the cause of poor saving habits, we should expect to see a steady decline from the earlier years to the later years as more corporations abandoned their pension plans. But that's not what shows up at all. Instead it looks mostly like a jumble, with the year 2007 looking pretty good (when the stock market and housing prices were both at high points) and 2010 and 2013 being slightly lower than the rest (after one of the largest stock and housing market declines of all time). The rest all look pretty much the same. 

    From a retirement perspective, the percentage of workers participating in an employer-provided retirement plan has held relatively constant for decades, and total retirement wealth has also remained steady despite the move to DC plans. Another report from the Boston College Center looked at this DB-versus-DC question head-on. It showed a clear decline in wealth from defined benefit pension plans, but an equal increase in wealth from DC plans. On balance, the two canceled each other out, and the report found that, "the accumulation of retirement assets has not declined as a result of the shift from defined benefit to defined contribution plans." In regards to the common perception that the shift to DC plans harmed retirement saving, the Boston College researchers concluded that, "We are going to have to change our story!" 

    None of this is to say that we should be sanguine about the current state of retirement security in this country. We should continue to bolster the safety net to ensure all workers have access to a secure, comfortable retirement. Defined benefit pension plans never met those goals, however, and mourning their passage is longing for a bygone era that never existed. 

  • I’ll be in Chicago later today to speak on a panel about the city’s pension crisis. Meanwhile, Chicago schools will be closed tomorrow for the second teacher strike in the last four years.

    These two events are related. In fact, the numbers behind Chicago’s teacher pension system are staggeringly, mind-blowingly awful. Here are a few highlights (or lowlights, depending on your perspective):

    • 2 cents: The amount teachers contribute into the pension plan for every $1 they earn in salary.
    • 7 cents: Called a pension “pick-up,” the city of Chicago pays 7 cents of each teacher’s so-called “employee” contribution (a total of 9 percent). The city and the union agreed to this deal in the 1980s and it has been common practice ever since.
    • 32 cents: The additional amount Chicago is paying into the teacher pension fund for every $1 they pay in salaries. (Most of this is for debt.)
    • $53 million: The amount Chicago contributed to the pension fund in 2006.
    • $328 million: The amount Chicago’s actuaries said it was supposed to contribute in 2006.
    • $635 million: The amount Chicago contributed to the pension fund in 2015.
    • $750 million: The amount Chicago’s actuaries said it was supposed to contribute in 2015.
    • $127 million: The amount of money the district spent on the pension pick-up last year. Chicago Public Schools is now bargaining to end the pick-up, a proposal that’s at the heart of the current strike (it would mean an immediate 7 percent cut in every teacher’s take-home pay). 
    • $800 million: The budget deficit the district faces next year, even after slashing school budgets in the midst of this year. 
    • 2059: The year in which Chicago hopes its pension fund will reach 90 percent funded (Note: the city does not currently expect to reach 100 percent funding ever). To even meet the 2059 goal, the city must annually contribute the full amount the actuaries say it needs (which the city has not done in recent years). The city must also be perfectly accurate in all of its assumptions, including earning annual investment returns of 7.75 percent.

    If these numbers aren't depressing enough, here's one last number:

    • 21 years: The length of time a new, 25-year-old Chicago teacher must remain teaching before her pension will finally be worth more than her own contributions. The vast majority of teachers will leave before then. Chicago teachers are in a different pension plan than other Illinois teachers, but these numbers are comparable to the state system.

    As is true for the state as a whole, Chicago is spending a lot of money to preserve a pension plan that isn’t serving its teachers very well.