Teacher Pensions Blog

If Mississippi leaders are looking for ways to improve teacher compensation, here’s one idea that wouldn’t cost them any money: Give K-12 teachers the same retirement plan options that faculty members at the University of Mississippi already have.

In Mississippi, both K-12 and higher education employees are automatically defaulted into the same defined benefit pension plan run by the Public Employees’ Retirement System (PERS). Members have to stay eight years to vest and qualify for a benefit upon reaching retirement age. Like other traditional pension plans, benefits are awarded through a formula tied to the member’s salary and years of service.

The standard PERS plan is quite costly to employers and taxpayers, but it’s not all that generous to members. According to the plan’s actuaries, who analyze the plan’s finances, the average member earns a benefit each year worth only 1.09% of their salary. (If that seems too low to be true, see page 11 of PERS’ latest actuarial valuation report.)

But wait, how can this be? Overall, PERS employers are contributing 17.4% of each member’s salary. Where is that money going? The difference is explained by the fact that PERS has promised benefits worth $18.7 billion more than it has saved. Like someone carrying a credit card balance, PERS has to pay down those debts, and that contribution eats 16.06% of each member’s salary.

In other words, the PERS pension plan is barely a benefit at all.

Mississippi’s K-12 employees are stuck with the traditional pension plan. But beginning in 1990, the state legislature directed PERS to create another plan. That plan, called the Optional Retirement Plan (ORP), is solely for employees at Ole Miss, Mississippi State, and other public colleges and universities across the state.

The ORP plan operates more like a 401k, where employers make contributions toward individual accounts. But unlike a typical 401k in the private sector, where employees are lucky to get a 4 or 5% match, all ORP plan members receive a 14.75% employer contribution directly into their retirement accounts.

Unlike K-12 teachers, Mississippi’s higher education faculty get to pick which of these two PERS plans best meets their needs. The traditional pension plan provides a guaranteed stream of revenue based on the benefit formula, whereas the ORP plan does not. But calculations from TeacherPensions.org suggest that guarantee is not worth that much: A PERS member would need to stay in the plan for 30 consecutive years before their pension would be worth more than their own contributions plus interest.

It’s possible that some very long-serving veterans might receive a better benefit under the PERS plan. But for most participants , the ORP plan is delivering a better deal. Moreover, ORP members qualify for benefits immediately, whereas the pension plan members have to teach for eight years or they won’t qualify for any benefit at all. 

If K-12 and higher education employees are fundamentally different, then it might make sense to offer different retirement plans to each sector. But Mississippi already enrolls most of its education employees across both sectors into the traditional PERS pension plan; the only difference is that higher education employees have the option to leave.

And, even if instructional staff are different across the two sectors, both the K-12 and higher education retirement plans cover many more employees than just those in teaching roles. For example, both plans include secretaries, librarians, janitors, or bus drivers, whose jobs may not look all that different across the two sectors.

As we show in a recent report for TeacherPensions.org, Mississippi is not the only state that offers different retirement benefits for K-12 teachers and higher education employees. If given the choice in Mississippi, some K-12 workers might stick with the traditional PERS plan. But that’s the point. The “right” retirement plan may vary for each individual, and legislators may not be able to design one retirement plan that fits all life patterns.

The math suggests that the ORP plan would provide a better retirement benefit for the vast majority of Mississippi’s education employees. Even if the financial arguments aren’t enough to convince everyone of the merits of the ORP versus the traditional pension plan, K-12 teachers at least deserve to have the same choices as higher education employees already have.

Chad Aldeman is the Policy Director of the Edunomics Lab at Georgetown University.