There are five things all Texas teachers should know about their retirement benefits:
- The Teachers’ Retirement System (TRS) of Texas is back-loaded, and it leaves the majority of its teachers without adequate retirement benefits.
- The TRS plan is one of the stingiest in the country. On average, Texas teachers receive less money toward retirement than many of their peers in the private sector.
- TRS benefits are getting worse. Due to rising costs, state legislators have slowly reduced benefits provided to new teachers, and teachers who enter Texas schools today are getting a much worse deal than their predecessors.
- Texas lets each individual school district decide whether they want to enroll their teachers in Social Security, creating a patchwork of coverage that is not good for teachers or employers.
- Texas has better options for public servants. In Texas, municipal and county workers are covered by retirement plans which do a better job of providing adequate retirement benefits to all workers.
Each of these points deserves its own section, so I’ll break them down one by one.
1. The TRS system is back-loaded, and it leaves the majority of its teachers without adequate retirement benefits.
The Texas TRS plan is a fairly typical teacher pension plan. As a defined benefit plan, it offers workers a retirement benefit that’s equal to 2.3 percent multiplied by their years of service and their final average salary. As an example, if a teacher taught in Texas public schools for 15 years, and her salary averaged $60,000 over her last five years of teaching, she’d be eligible for annual benefits worth $20,700. The math looks like this:
Annual Pension = 2.3 percent * Years of Service * Final Average Salary
Annual Pension = 2.3 percent * 15 years * $60,000
Annual Pension = $20,700
In Texas, teachers must serve at least five years before qualifying for a pension (this is called the “vesting” period). The state also sets rules on when teachers can begin collecting their pension. For teachers hired today, they can begin collecting a pension check at age 65 if they had at least five years of service, or age 62 if they had more than 18 years of service. (Teachers may also begin collecting retirement benefits at younger ages, but those benefits are reduced for every year early they are claimed.)
This may sound fairly simple, but it’s complicated by the fact that the “Final Average Salary” number is calculated based on the years in which it was earned. That is, if our hypothetical teacher began her career at age 25 and served 15 years, her pension would be based on her salary at age 40. But, critically, she wouldn’t be able to collect her pension until age 65. By that time, inflation would have worn away the value of her pension significantly.