Teacher Pensions Blog

Every year nearly 270,000 teachers leave public schools, and by consequence, their state or district retirement system. As teachers leave, what happens to their pension contributions? Teachers in every state have the option of withdrawing or cashing out their pension contributions when they resign. But many simply forget and end of up leaving thousands of dollars in the state coffers.

Each pay period, a teacher contributes a percentage of her paycheck to the state or district retirement system. These contributions go into a pension trust fund that will be used to help fund future teacher pensions. Teachers who leave the system before qualifying for a pension, however, have the option of withdrawing their retirement contributions plus interest in certain states (see our recent report for more details). Many teachers who leave, however, end up leaving their pension contributions as well.

For example, the median salary for a New York state teacher with a bachelor’s degree is $40,083. Assuming she pays the required 3.5 percent contribution rate (the percentage paid by teachers hired between 2010 and 2012), she would contribute over $1,400 per year. Her total contributions will vary depending on how long she stays in the classroom. Upon leaving the system, NYSTRs employees can withdraw their contribution plus interest but forfeit all employer contributions (currently 11.11 percent of payroll). Put in relation to the state pension’s 10 year service requirement, a teacher could work for up to nine years and then leave the system before qualifying for a pension. If she fails to withdraw her contributions, she potentially leaves behind over $9,000 of her own money.

By state law, NYSTRS must follow a set of procedural steps before deeming a benefit “abandoned.” The comptroller must notify the non-vested teacher (the teacher who does not qualify for a pension) five years after she leaves the system about claiming her contributions. The comptroller will then publish the names of teachers whose contributions remain unclaimed. If the teacher does not file a claim with the comptroller within 18 months from the date of the comptroller’s first notice, the teacher’s contributions will be declared officially “abandoned” and will be transferred back to the pension accumulation fund. However, the teacher retains the right to file a claim and receive her contributions back, even if a teacher’s funds are deemed abandoned. These rights persist even if the teachers dies, whereupon her beneficiary or estate retains the right to claim the contributions.

The New York State Teachers’ Retirement System (NYSTRS) publishes a database of unclaimed and abandoned retirement benefits. The NYSTRS database lists 1,315 names in the unclaimed account, and 6,529 names in the abandoned account. This means that there are nearly 8,000 teachers who have forgotten to claim their contributions. Eventually, these unclaimed contributions are deemed truly “abandoned” funds and put into the state’s pension accumulation fund. That is, abandoned funds become property of the state unless otherwise claimed by the teacher or her beneficiaries.

Unclaimed money is not an anomaly of the public sector. The Pension Benefit Guaranty Corporation, a government agency that protects private pension beneficiaries, holds over $300 million in unclaimed benefits in the U.S. and $42 million in in New York alone. The New York Office of the State Comptroller is custodian to over $12 billion in unclaimed funds from banks and companies who are required to relinquish unclaimed accounts to the state. Teachers leaving the classroom are unfortunately contributing to this wasteful and expensive habit.