Teacher Pensions Blog

When a teacher leaves, she has the option of taking her retirement contributions with her or leaving them in the system. Most pension plans assume that 100 percent of teachers who do not qualify for a pension who leave the system will take their contributions with them (even though this is not always the case). But for a teacher who does qualify for a pension (a vested teacher), the odds of her taking her contributions as an immediate cash payment or waiting for a pension upon retirement are a bit more mixed.

We searched public pension plan documents to find what happens to departing teacher contributions. Do they roll over their funds into another retirement account? Do they cash the money out and use it for something else (called “leakage”)? We ultimately failed to find this type of information--plans don't track what happens after teachers leave them--but we did find some data on how frequently vested teachers cash out. From our scan of state pension documents we found that:

  • The District of Columbia Retirement Board (DCRB) assumes 35 percent vested teachers who leave will withdraw their contributions.
  • California State Teacher Retirement System (CalSTRS) assumes 29-34 percent of vested female teachers with 10 years of service will withdraw their contributions, depending on their age.
  • Idaho Public Employees Retirement System (IPERS) assumes 6 percent of 25-year-old vested females who leave will withdraw their contributions, and 15 percent of 45-year-old vested female who leave will withdraw their contributions. Idaho's assumptions include teachers and other public sector workers.

Additionally, all plans itemize the total dollar amount of their refunds. CalSTRS reported over $100 million in refunded contributions to departing teachers. Compare this to the amount spent on the cost of administering CalSTRS ($139 million) and the system’s total benefits payments ($11 billion). The District of Columbia reported $5.3 million in refunds to teachers. Virginia reported 8,530 withdrawals totaling $81.5 million to teachers and other public sector workers (or an average of $9,555 per worker). Kansas reported 9,500 withdrawals totaling $48 million to teachers and other public sector workers (or an average of $5,052 per worker). Many of these withdrawals are considerably smaller than they would be in the private sector or if teachers had access to their employer's contributions. 

These data points indicate that there are teachers who are eligible for a pension but, for whatever reason, choose not to take it. Pension plans don’t track what happens to withdrawn contributions, so we don’t know exactly why these teachers are choosing to forgo their pensions. They could be cashing out the funds for personal use or rolling over the funds to another retirement account. If teachers are choosing to cash out, however, they will face costly “leakage” tax penalties for withdrawing funds for non-retirement purposes (a growing problem in the private sector). Ideally, it would be useful to know the percentage of non-vested who leave their contributions behind. Pension plans, however, usually assume that all non-vested teachers take their contributions and only report the likelihood that vested teachers withdraw contributions. Pension plans could guide individual teachers through their choices and how they could best maximize their retirement savings.