How Do Retirement Plans Work for Teachers?

Chad Aldeman and Andrew J. Rotherham
Publication Date: 
June 2019

In “Teacher Pension Plans: How They Work, and How They Affect Recruitment, Retention, and Equity,” we look at the history of these 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. While there are no easy or one-size-fits-all solutions, this deck concludes with examples of states that have re-designed their retirement systems to better meet the needs of teachers, taxpayers, and the general public.

Education spending is hitting all-time highs — but, by and large, new money isn’t going to teacher salaries.

How is this possible? One factor contributing to this disconnect is the fast-rising costs of teacher pension plans. Over the last 15 years, pension contributions have eaten up larger and larger shares of school spending, from $15 billion a year in 2001 to more than $40 billion in 2016. Those costs are quietly crowding out spending for things like textbooks, after-school programs, and even base teacher salaries.

About 90 percent of public school teachers today are enrolled in defined benefit pension plans operated by their state. Most of these state-run plans were created decades ago, and they have not adjusted to serve the mobile teaching workforce in today’s modern society. While they do serve some long-serving veteran teachers well, the plans also leave many short- and medium-term teachers with less-than-adequate benefits.

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