Teacher Pensions Blog

  • Teacher pension systems are not structured to effectively serve educators whose spouse is an active duty military service member. And while teaching may be a good career option for military spouses in theory, the way that states have set up their pension plans means these families will face challenges saving for retirement.

    For military families, who typically move every 2-3 years, the problem can be boiled down to this: statewide defined benefit (DB) pension funds are designed for educators who spend their entire career teaching in the same state. A key challenge for highly mobile educators like military spouses is that state teacher pension benefits are not portable. Teachers who leave the state, even if they continue teaching elsewhere, cannot take their pensions with them. This is not to say that teachers who have served long enough to qualify for a pension lose those benefits if they move away from the state. Rather, their overall pension wealth ceases to grow once they leave the state. Dividing a career’s worth of pensions across multiple state plans can significantly decrease the total value of their aggregate retirement wealth.

    While there are military personnel in every state, the table below lists the ten states with the largest population of active duty military personnel. It also includes six elements of the state’s teacher retirement plan most relevant to military families. This piece will explore how these aspects of teacher pension plans affect military-connected families. How well they are served by these pension funds varies from state-to-state.

    The first thing to notice is that each state has set a vesting period of at least five years. This means that an educator must teach at minimum for five years in the state to be eligible to receive the contributions to the pension fund the state made on her behalf. This presents a challenge to all educators, since in 30 states less than 50 percent of teachers ever vest in the system. This problem is particularly acute for military-connected families who move across state lines before reaching the years of service threshold required to qualify for benefits. In Georgia and Hawaii, teachers must work twice as long to qualify for a pension – far longer than a military family can expect to live in the same state. And given 70 percent of all active duty personnel are employed in these 10 states, it is likely that military families will be stationed in one or more of these states during their career.

    For teachers who fail to vest in their state’s pension fund, how much they personally contribute each year is particularly relevant. The employee contribution rate -- the percentage of salary a teacher pays into the pension each year – can act like a forced savings mechanism, requiring teachers to put away some money each year for retirement. With this in mind, military-connected teachers tend to be better served by state plans with higher teacher contribution rates, such as in Colorado and Washington. Florida and Virginia, on the other hand, have relatively low contribution rates, which results in lower retirement savings for educators in those states. Additionally, the majority of states with the most active duty military personnel provide interest credit on a teacher’s own contributions if they leave the fund before vesting. For example, Virginia awards 4 percent interest on teacher contributions to those who exit prior to reaching the 5 year vesting threshold.

    State spending on pension debt matters to all teachers. The more a state spends on debt costs – essentially playing catch-up on payments they missed in the past -- the fewer dollars they have available to be spent on benefits or increased teacher salaries. Greater spending on debt costs reduces a teacher’s total compensation, which is harmful generally, but most acutely for those educators who leave the state or the profession before qualifying for a pension.

    Despite the challenges military-connected educators face with state pension systems, there is some good news: Six of these states participate in Social Security.  This is critically important for all teachers, but especially those who move frequently from state-to-state since they can count on this monthly supplemental income when they retire. However, teachers who work all of their career in a state without Social Security will not receive those benefits in retirement. For teachers who move a lot, their time in those states will not count as qualified service for Social Security, and can reduce their benefit when they retire.

    Another piece of good news is that four of the states with the most actively duty military personnel offer alternative, portable retirement plans. Like a typical 401k retirement plan, these plans can travel with teachers if they leave the state or the profession altogether. This can be a good option for educators who expect to move frequently.

    Teacher pensions are designed for educators who spend their entire career in the classroom and in the same state. Simply put, these systems are ill-suited for military-connected families who are at risk of moving around the world. To better serve our service men and women and their families, states should consider providing them the option of enrolling in alternative retirement plans that are as mobile as they need to be.


  • Florida is the retirement capital for most of the United States. So at the very least the state’s own teachers and public workers should feel comfortable that they can retire comfortably there too some day. But that may not be the case.

    Today’s Florida Retirement System has promised more than $30 billion in pensions than it has money to pay — and $15 billion of those are promised to K-12 educators. These “unfunded liabilities” have emerged only in the past 12 years and have been growing fast. If the current trends persist, it might be that the only people who can’t afford to retire in the Sunshine state are the people who served the state by teaching its children.

    That’s why our team at Equable has launched FundMyFRS.org — and we are encouraging people to share with others about this troubling problem.

    So what’s going on? In short, Florida is gambling away a secure retirement for teachers. 

    For years, market expectations for Florida pensions have been overly optimistic — leading to a massive miscalculation. Over the past two decades, FRS predicted even higher returns than what the record-breaking market brought in. It’s been so bad that over the past few years, even the advisors Florida has hired to help them manage pension finances have said FRS market expectations are unrealistic. 

    The result is that more than half of the $15 billion hole in pension funding for teachers is due to overly optimistic assumed rates of return. 

    To make things worse, the actual benefits that FRS is providing are increasingly not sufficient to ensure teachers get a secure retirement. Members of the Investment Plan do not have large enough contributions going into their accounts. Members of the Pension Plan are no longer earning benefits that will be inflation protected.

    What can be done? There are a few things, but they will all require a stakeholders from across the state to join together and take on a big political challenge. 

    1. FRS needs a realistic assumed rate of return that Florida expects can be earned from financial markets. As it stands Florida is paying less today because it assumes it will earn more tomorrow. It would be better to have realistic expectations and put the money in today. 

    2. The Florida legislature needs to ensure it pays the full required contributions into the Pension Plan each year, and work to get the pension shortfall closed as quickly as possible. 

    3. Contributions into the FRS Investment Plan need to be increased so that there is more than the current 6.3% of salary being saved. Financial experts recommend that defined contribution plans get 10% to 15% of salary saved each year, in addition to Social Security. 

    4. Finally, the Florida legislature needs to ensure all retirement benefits are inflation protected, and find a way to re-introduce cost-of-living-adjustments to the benefits being earned by today’s public workers. 

    For more details visit FundMyFRS.org or check out some of the Florida posts here on TeacherPensions.org

    Anthony Randazzo is executive director at Equable Institute, a bipartisan non-profit working to create a safe, more secure retirement for public workers everywhere.


  • Teacher pension costs have been rising. Fast.

    How do the rising costs of pensions affect other aspects of our education system? It’s relatively easy to point to simultaneous trends—for example, teacher salaries have been flat as pension costs have risen in recent years, and districts report that rising pension costs are leading them to cut back on other essential services.

    It’s much harder to draw a causal connection between fluctuations in pension costs and changes in the broader education system. There are a number of factors influencing school district budgeting decisions, and pensions are only one of many competing priorities.

    However, a new study from Dongwoo Kim, Cory Koedel, and P. Brett Xiang attempts to disentangle these effects. I spoke with Koedel about their results. What follows is a lightly edited transcript of our conversation:

    Aldeman: First, can you give a brief background on the paper. What questions were you trying to address?

    Koedel: The paper is about where the money for pensions comes from. Pension costs have gone up a lot in recent years and following where that money is actually coming from is not easy. It’s not clear who is actually paying for the rising pension costs.

    The purpose of our paper was to try to figure out one piece of that question. If some of the money to pay for pensions is coming out of teacher salaries (or not), that should be part of the political discourse about teacher pay and the teacher strikes that have been popping up.

    For those who are unfamiliar with pensions, can you talk about how much teacher pensions cost and how that’s changed over time?

    Pension costs have gone up pretty continuously since the turn of the century. Our data covers the years 2001 to 2015. During that time, the average annual required contribution went from about 12 to 22 percent of teacher salary. Our sample does not include all the states in the early years, but that’s a roughly accurate representation of the increase in costs nationwide.

    A reason to think that teacher salaries might be affected is that pensions are collected as a percentage of salary. When districts and employees pay into the plan, they’re paying as a percentage of salary.

    Plus, benefits are tied to salaries, so there’s a natural connection in the way that pension plans are funded and overall salary levels.

    One thing you note in the paper is that pension costs are rising due to unfunded liabilities, not because benefit costs are increasing. Is that correct?

    That’s right. The value of benefits is not increasing. The cost increases are predominantly from unfunded liabilities. I can’t say for certain that no state has improved benefits recently—though I don’t know of any—but a lot of states have reduced benefits. Of course, the benefit reductions only apply to new hires, so they take a while to phase in. But the bottom line is that benefits are not improving even as costs are rising.

    What did you find? How are costs related to teacher salary expenditures?

    We measured total teacher salary expenditures. You can think of teacher salaries as either going up on the extensive margin by expanding the number of employees, or on the intensive margin by raising the pay of the staff you already have. Our main analysis is inclusive of both of these margins. We are looking at the total salary bill and how that is influenced by changes in pension costs.

    Prior to the Great Recession, we don’t find a relationship between pension cost fluctuations and salaries. It seems like these two aspects of compensation were acting independently.

    However, since the Great Recession we do find an effect. Every 1 percent increase in the annual pension contribution has led to a reduction in total salary expenditures of .24 percent, on average.

    We do our best to disentangle how salary expenditures are affected and the decrease seems to be driven by staff reductions (which could also include foregone staff expansions that would have happened in the absence of rising pension costs). Put another way, we don’t see average salaries going down. But we do see the total salary expenditure bill going down.

    Can you hypothesize about why rising pension costs might hit staffing levels more than they would average salaries?

    I’m totally speculating here because our analysis can’t speak to this directly. But there are mechanisms to help explain our results. It could be that in district negotiations with labor groups, it’s harder to negotiate salary reductions. I should be clear that a salary reduction here does not necessarily mean an outright cut in pay. We would detect an effect even if salaries were held flat or simply did not keep up with the increases that would have happened in the absence of rising pension costs. But we don’t see any movement on the average salary side, so a reasonable hypothesis is that labor negotiations are such that salaries are relatively protected, especially in contrast to decisions over staffing levels, and that’s where the cutbacks are happening. Districts have to pay for the pension costs somehow, and it seems like that’s the decision they are making.

    Do you have any final thoughts or lessons for policymakers?

    Our results point to something intuitive. Pension costs are going up fast, and we did find at least part of how they’re being paid for. That is, pension costs are leading to cuts in services in the form of reductions to the size of the teacher workforce.

    My hope is that this will spark more interest in pensions from the education community. In the past, pension costs didn’t really affect this aspect of spending, but the world seems to have changed with the Great Recession. Pension costs are harming the bottom line in terms of delivering education services.

  • We ask a lot from teachers. We ask them to teach math, reading, and arithmetic, yes, and to be “nation builders” and instill civic virtues.

    We also expect them to make incredibly complicated financial decisions about their retirement.

    But wait, you might ask, aren’t most teachers covered by state-run pension plans that take care of retirement savings decisions? That is true, but most teachers won’t remain in those pension plans their full career. And when they leave, they’ll be faced with a difficult decision about what to do with their retirement money.

    About half of all teachers won’t vest into their pension plan at all; they won’t be eligible for a pension from their pension system. These teachers are eligible to withdraw their own contributions, sometimes with a small amount of interest, but only two states provide exiting teachers with any employer contributions. These teachers need to decide whether they should keep their money in the pension plan, or whether they're better off withdrawing their money and rolling over their savings into an Individual Retirement Account (IRA).

    That’s a tough decision, particularly if the teacher is simply taking time off to start a family or is thinking about returning at some point in the future. But it’s nowhere near as tough as the decision faced by teachers who are vested.

    A vested teacher will qualify for a pension upon retirement, but that may be many years away, and their future pension will be based on their salary today, unadjusted for inflation. What is the pension worth today, in real, inflation-adjusted dollars? That’s a much tougher calculation, and it depends on how fast you think inflation and investments will grow over time. Smart economists have different answers to these questions, so what’s a teacher to do?

    According to a recent study on the behavior of Illinois teachers, most teachers take the conservative route of inaction. Looking across all departing, vested teachers, 73 percent opt to leave their money with the pension plan. That means about one-quarter of vested teachers withdraw their contributions. All together, in addition to the 62 percent of teachers who won’t vest in Illinois, that means roughly three-fourths of Illinois teachers will either fail to qualify or choose not to receive a pension. Those rates vary somewhat by type of teacher. Males are more likely than females to withdraw their money. Hispanic and, especially, black, teachers are more likely to withdraw than white teachers.

    But are these teachers making the “right” financial decision? That depends, again, on their personal situation and how fast they might be able to grow their investments on their own.

    In the Illinois study, economist Martin Lueken calculated the net pension wealth for every teacher based on their age and years of experience. If teachers had an expected pension wealth above what they would have been able to withdraw and invest on their own, he considered them to have a “positive” net pension wealth. If not, he classified them as having a “negative” net pension wealth. Then, he adjusted their net pension wealth based on potential investment returns. The higher the investment return teachers could earn themselves, the less likely they were to have a positive net pension wealth (that is, the better they were at investing on their own, the less valuable the pension amount became). 

    If teachers could take their own money and earn an investment of only 2 percent above inflation, just 14 percent of vested Illinois teachers would leave with a negative pension wealth. That's a very modest assumption, and most teachers would be better off leaving their money with the pension plan in that circumstance. But if teachers could do a little better with their investments and earn a 4 percent return (still not an outrageous assumption), then 73 percent of teachers would leave with negative pension wealth. They would be better off pulling their money than leaving it in the pension plan. (At 6 percent, a high investment return but still below what the state itself thinks it can earn, 88 percent of teachers would be better off pulling their money.)

    For each of these scenarios, Lueken’s calculations allow us to see how many teachers made “correct” or “incorrect” financial decisions*.  Depending on the assumed investment return, somewhere between 32 and 64 percent of teachers were making incorrect decisions. The chart below illustrates where teachers would fall under the 4 percent assumption. In this moderate scenario, more than half of all departing teachers are making the wrong decision. About 32 percent of teachers with positive pension wealth cashed out but shouldn’t have, and 63 percent of teachers with negative pension wealth should have cashed out but didn’t.


    Teachers are well-educated, intelligent people, but to make these decisions requires a lot of foresight and willingness to deal with uncertainty. Pension plans are essentially asking teachers to predict whether they’ll return to teaching and to compare their pension wealth, in future dollars, versus how much it might be worth if they invested their money elsewhere. That’s complicated stuff, and it’s something most teachers don’t have the time to contemplate. 

    In comparison, most workers in the private sector have much easier decisions. Unlike under a pension plan, they have to decide their own investments, but they're given a limited list of options. Increasingly, private-sector employers are nudging workers into making good decisions. And, when they leave a job, the choices are simpler. They can either leave their money in the existing funds, or roll it over to IRAs. The questions for private-sector workers are really about investment options and fees, and they’re much more straightforward than the decisions teachers face.

    States, on the other hand, systematically force public school teachers to make extremely complex financial decisions. Saving for retirement is hard enough; we shouldn't force teachers into such complex decisions. 

    *"Correct" in this context is hypothetical, based purely from a financial standpoint, and it assumes teachers had full information about the value of their pensions. In real life, individual teachers don’t have perfect information and must weigh trade-offs from their own unique perspective. As with all of our work here at TeacherPensions.org, this post is illustrating public policy choices and is not intended as personal investment advice. Teachers should consult a qualified financial professional before making consequential financial decisions.

  • Here at TeacherPensions.org,  we know pensions can be complicated. Thanks to teachers and their family members finding our site as they search for information about how pension rules affect them, 2019 was another banner year for our traffic figures. We aim to help teachers understand how their benefits work through simple, clear explanations.  

    As we look back on 2019, pensions and other employee benefits continued to eat into teacher salaries, and new research documented the ways pensions affect teachers, schools, and students. To recap the year in pension analysis, here's a list of our most popular work from 2019: 

    10. How Teacher Pensions Exacerbate Inequities in Rural and Urban School Districts: Pension plan benefit formulas typically depend on two main variables--salary and years of experience. Teacher pension plans in particular tend multiply those variables to determine benefits for all educators across an entire state, but teachers and school district resources are not equitably distributed across states. This piece found that rural districts, with lower salaries, and urban districts, with higher staff turnover, receieve lower pension benefits compared to educators in suburban schools. 

    9. Technically Speaking, Ohio School Districts Don't Contribute to Ohio Teacher Pension BenefitsIn Ohio, school districts are contributing 14 percent of each teacher's salary toward the state pension plan. However, all of that money is going to pay down the pension plan's unfunded liabilities. In fact, a portion of Ohio teachers' own contributions are also being spent on the pension plan's unfunded liabilities. Crazy as it may sound, the average Ohio teacher is getting back less from the pension plan than they themselves are putting into it. 

    8. For Most Teachers, Vesting Periods Don't MatterUnder most retirement plans, employees begin to qualify for employer-provided retirement benefits once they reach the plan's vesting period. But under pension plans, like those offered to most teachers, merely qualifying for a pension does not necessarily translate into much of a benefit, particularly for younger workers. For teachers who begin their careers before age 45 or 50, vesting won't matter at all; they may even be better off withdrawing their funds immediately than waiting to collect a benefit when they retire. 

    7. Insufficient: How State Pension Plans Leave Teachers With Inadequate Retirement Savings: In the retirement world, it's common to hear people assume that workers who are covered by a pension plan are better off than workers with other types of retirement plans. That perception is doubly true for teacher pension plans. But in this piece, we found that a new, young teacher in a typical state would have to stay for 28 years before qualifying for an "adequate" retirement benefit. Teachers who fall short will have to work longer, save more in their personal accounts, or rely on other forms of income in their retirement years. There are cost-neutral plan design options that would put all teachers on a path to a secure retirement. 

    6. New Actuarial Study: Good News for Teachers, but With a Price Tag for StatesTeachers are living longer, and the average retired teacher can expect to live to 88 or 90 years old, depending on their gender. While these new actuarial findings may come as good news for teachers and their family members, they do come with a cost for state pension plans. 

    5. California's Hidden Pension Gap: State Spending on Teacher Pensions Exacerbates School District InequitiesAs with the #10 story highlighted above, this piece found that wealthier school districts in California benefited slightly more from the state's investments in teacher pensions than poorer districts did. Less-needy districts – those with fewer low-income, English learner, and foster youth students – benefit more because their teachers have higher salaries. 

    4. Teacher Pension Plans: How They Work, and How They Affect Recruitment, Retention, and EquityIn this easy-to-read PowerPoint slide deck, we look at the history of teacher pension plans and how they interact with key education issues facing our schools today, including attracting and retaining high-quality teachers and providing equitable resources for disadvantaged students. 

    3. Social Security, Teacher Pensions, and the “Qualified” Retirement Plan TestIn 15 states and the District of Columbia, public school teachers do not participate in Social Security. While working in those states, teachers neither contribute nor earn benefits toward the nationally portable, progressive benefit structure that many Americans depend on. Although there are federal rules designed to protect those workers, we find that those rules fail to protect many short- and medium-term workers who leave their service with only minimal retirement benefits. 

    2. Update: What is the Average Teacher Pension in My State?In 2019, we updated one of our most popular pieces of all time--a 2016 post looking at the "average" teacher pension in each state. In the new version, we updated the state figures, provided additional context, and added new features to improve the user experience. Although knowing the “average" pension in each state can be interesting, we caution that it may not reflect the amounts many teachers actually earn. 

    1. At What Age Do Teachers Start Teaching?Our most popular post of 2019 provides data on the average age teachers begin their careers in each state. While a teacher's age may not affect their teaching ability, age is an important factor when it comes to calculating teacher pension benefits. Because teacher pension formulas are based on a teacher's salary in the last year they taught, regardless of when that took place, pensions offer greater rewards for late-career service than than they do for the same years performed earlier in the teacher's career. From a policy standpoint, it may not make a whole lot of sense to prioritize some teachers over others. But that's exactly what teacher pensions do. 

  • The Wall Street Journal has an important story up this month by reporters Anne Tergesen and Gretchen Morgenson on how unions receive kickbacks from companies peddling high-fee 403(b) accounts to teachers. Here's just one story: 


    Teacher David Hamblen said a recommendation by the National Education Association was a key reason he put 403(b) savings in an annuity before his 2010 retirement from the El Dorado Union High School District in Placerville, Calif. 


    The NEA is the nation’s largest teachers union, with some three million members. “I thought that if they were recommending it, it must be a very good product,” Mr. Hamblen said.


    Around 2007, he read an article that mentioned payments an NEA affiliate received from an insurance company. With another public-schools employee, he sued the union, as well as insurance company Security Benefit Corp. and others. The suit, filed in federal court in the Western District of Washington in Tacoma, alleged that 403(b) participants were harmed by an arrangement in which the NEA and an affiliate endorsed high-cost investments from providers....


    Mr. Hamblen in California lost his lawsuit challenging the NEA subsidiary’s deal with investment providers. A federal appeals court said the union and its subsidiary didn’t have a fiduciary obligation to make sure that fees on retirement-plan products were reasonable. Generally, public-school teachers’ 403(b) plans are exempt from federal pension law requiring 401(k)-plan sponsors to act in participants’ best interests. 


    Although teachers should consult with their own financial advisors before making any decisions, they can check out the nonprofit website 403(b)wise for more personal stories like this one, plus suggestions on how to get out of a bad 403(b) or avoid getting into one in the first place.