Snapshot of Teacher Retirement
District of Columbia Teachers' Retirement System
Average pension value (2018): $30,829
Median pension value (2018): $53,172
Vesting Period: 5 Years
Teacher Contribution Rate (2018): 8%
Employer Contribution Rate (2018): 11.67%
Participation in Social Security: No
How Do Teacher Pensions Work in the District of Columbia?
Teachers and other educational employees, including principals, librarians, psychologists, social workers, and counselors employed by the District of Columbia Public Schools are automatically enrolled in the District of Columbia Teachers’ Retirement Plan.
The basic structure of DCPS' defined benefit (DB) teacher pension plan is similar to that of other states. Unlike other retirement funds, a teacher’s contributions and those made on their behalf by the school district do not determine the value of the pension at retirement. Although those contributions are invested in the market, and often managed by private equity and hedge funds, a teacher’s pension wealth is not derived from the returns on those investments. Instead, it is determined by a formula based on their of experience and final salary.
How Are Teacher Pensions Calculated in D.C.?
Pension wealth is derived from a formula. The figure below illustrates how a teacher pension is calculated in D.C. It is important to note, however, that the state assesses an educator’s final salary based on their average salary from the highest 3 consecutive years of earnings. For example, a teacher who works for 25 years with a final average salary of $70,000 would be eligible for an annual pension benefit worth 50 percent of their average final salary.
Calculating Teacher Pension Wealth in D.C.
|2.0% Multiplier||X||Avg. salary over consecutive 36 months||X||Years of service|
Who Qualifies for a Teacher Pension in D.C.?
Like most states, D.C. educators need to serve a number of years before qualifying for a pension. In D.C., this "vesting" period is 5 years. While educators qualify for a pension after 5 years of service, the pension may not be worth all that much. Moreover, educators can’t begin to collect it until they hit the plan's retirement age.
D.C. sets specific windows when teachers can retire with benefits based on age and years of experience. For teachers in D.C., they can retire with their full benefits when they reach one of the following conditions:
- Age 62 with at least 5 years of experience;
- Age 60 with at least 20 years of experience;
- Age 55 with at least 30 years of experience; or,
- For those hired after 1996, any age with at least 30 years of experience.
How Much Does the D.C. Teacher Pension Plan Cost?
As they work, teachers and their employers must contribute into the plan. In 2018, educators contributed 7 or 8 percent of their salary, depending on their hire date, and employers contributed 11.67 percent of salary to the pension fund. However, not all of that investment goes toward benefits. While the full employee contribution goes toward benefits, the state contributes only 6.77 percent. The remaining 4.9 percent employer contribution is to pay expenses and the plan's unfunded liabilities.
Finally, in D.C., as in most states, teacher pensions are not portable. This means that if a teacher leaves DCPS system, they can’t take their benefits with them, even if they continue working in the teaching profession. As a result, someone who leaves teaching or who moves across state lines might eventually qualify for two pensions, but the sum of those two pensions is likely to be worth less than if they remained in one system for their entire career. In other words, the lack of benefit portability will hurt the long-term retirement savings of any DCPS educator who leaves teaching altogether or who crosses state lines to work in another state.
As with most state pension funds, D.C.'s teacher retirement system provides the greatest benefits to teachers who stay the longest, while leaving everyone else with inadequate benefits. With that in mind, new and current teachers in DCPS should think carefully about their career plans and how they interact with the state's retirement plan.
Glossary of Financial Terms
Vesting period: The number of years a teacher must teach before becoming eligible to receive a pension. Although the length of vesting periods vary by state, 5 years is typical. In every state, a teacher who leaves prior to vesting is eligible to withdraw his or her own contributions, sometimes with interest, but few states allow those employees to collect any portion of the employer contributions made on their behalf.
Employee contribution: The percent of a teacher’s salary that he or she pays annually to the pension fund.
Employer contribution: The percent of a teacher’s salary that the state, school district, or a combination of the two pays annually to the pension fund.
Normal cost: The annual cost of retirement benefits as a percentage of teacher salary. This excludes any debt cost.
Amortization cost: The annual cost of a pension fund’s contribution toward any unfunded liabilities. This can also be thought of as the debt cost of the pension fund.