Blog: State Pension Plans

A hundred years ago, Illinois teachers received a fixed, annual benefit that was determined independent of salary: a “flat pension.” However, there were severe issues with the original pension system.
Illinois experienced increased teacher retention over the past decade. Rising retention rates however translated to increasing costs, and in 2011, Illinois responded by making it more difficult for a teacher to receive a pension.
Pension analyses that ignore the effects on short- or medium-term workers are extremely incomplete.
We searched public pension plan documents to find what happens when teachers leave a pension plan. Although this this information is limited, some teachers prefer to cash out and take a lump-sum payment rather than waiting to draw a pension in retirement.
Michigan’s retention rates are actually higher than they used to be. Fifteen years ago, even fewer Michigan teachers stayed in the classroom than they do today.
A new paper looks at pension changes adopted by states during the recent recession and finds that new teachers face significant penalties based solely on the day they were hired.
Few states have adopted pure defined contribution plans, but there has been a recent increase in the number of non-traditional retirement plans, including hybrid plans that give employees more flexibility while reducing state financial burdens.
In New York, teachers were subject to mandatory retirement laws that capped the age a teacher could work. Mandatory retirement laws do not exist anymore, but current pension systems do subtly encourage older teachers to retire.
With all the noise about teacher pensions it’s interesting that Social Security receives so little attention. About 40 percent of teachers are not covered. Why not?
As legislators in Illinois and other states face similar dilemmas about who pays the costs of pension payments, they should keep in mind issues of fairness, equity, and transparency.