Friends without Benefits

Chad Aldeman and Andrew J. Rotherham
Publication Date: 
March 13, 2014

Saving for retirement is a nationwide problem—a recent study found that 92 percent of households do not meet retirement savings targets for their age and income. Yet for most workers, public policies are not the root cause of their lack of savings. For public school teachers, however, poorly structured policies put in place over the past few decades by states and cities can exacerbate their retirement insecurity.

Authors Chad Aldeman and Andrew J. Rotherham demonstrate the consequences of those policies. The authors estimate that half of all Americans who teach in public schools won’t qualify for even a minimal pension benefit, and less than one in five will remain long enough to earn a normal retirement benefit.

The report uses state pension plan data to estimate how many teachers will qualify for at least a minimal pension benefit. It finds that:

  • On the positive side, at least two-thirds of teachers in Idaho, California, and Kentucky will qualify for a pension benefit.
  • Maine estimates that 86.1 percent of teachers will not qualify for a pension, and the District of Columbia estimates that four out of five beginning teachers will not.
  • Only about 25 percent of teachers will qualify in Mississippi, Pennsylvania, New Hampshire, and Hawaii.
  • Fewer than 35 percent of teachers will stay long enough to qualify for a pension in Florida, Nebraska, Indiana, South Carolina, New Mexico, Ohio, Georgia, and North Carolina.

Qualifying for a minimum benefit is not sufficient for a secure retirement. Aldeman and Rotherham estimate that fewer than one in five teachers who enter the classroom at age 25 will stay long enough to reach their normal retirement age. Ten states—Maine, Vermont, South Dakota, New Hampshire, Mississippi, Wyoming, Colorado, Texas, Nebraska, and Arizona—and the District of Columbia estimate that fewer than 10 percent of teachers will remain in the state system long enough to earn a secure retirement benefit.

The savings penalties for mobility are large. An individual teacher could forfeit up to 6.5 percent of her annual salary for one year, or, due to compound interest, 22.6 percent of her annual salary after three years according to the new Bellwether analysis. To put these penalties in dollar terms, a hypothetical teacher earning $40,000 a year could face a savings penalty of $2,601 for teaching only one year and $9,035 if she left after three years. This money stays with the pension funds and is used to supplement the pensions of the remaining teachers.

As a result, while the system works for a few, it creates an enormous problem affecting many—especially given the increasing career mobility of the American workforce.  At 3.3 million, public schools teachers are one of the largest professions in the U.S. Teachers are often compared to members of professions with similar educational levels like nurses or social workers, but public school teachers are as large a group as those two professions combined, and teachers are the single largest class of workers with a bachelor’s degree or higher.

The authors argue the retirement security of Americans who teach in public schools should be a national concern and conclude with guiding principles for policymakers to consider in designing retirement benefits for tomorrow’s workforce.