Snapshot of Teacher Retirement
Florida Retirement System
Defined Contribution (DC) Plan
Teacher Contribution Rate (DC): 3%
Employer Contribution Rate (DC): 3.25%
Teacher Contribution Rate (DB): 3%
Employer Contribution Rate (DB): 6.75%
Vesting Period: DC-1 year; DB-8 years
Participation in Social Security: Yes
How Does Teacher Retirement Work in Florida?
In Florida, teachers are a part of the Florida Retirement System, which includes not only teachers but all state employees. The system was formed in 1970.
But unlike most states, new teachers in Florida have a choice about what retirement plan they enroll in. By default teachers are enrolled in the Florida Retirement System Investment Plan, which is a defined contribution (DC) plan. The DC plan functions like a traditional 401k-style plan in the private sector: the employee contributes a set percentage of her salary and the employer matches a portion each year. Alternatively, teachers can elect to participate in a traditional defined benefit pension plan, the Florida Retirement System Pension Plan. For new hires, their retirement plan selection must be made on the last business day of the 8th month after their hire date.
The basic structure of Florida's 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 state or 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, pension benefits are determined by a formula based on the worker's years of experience and final salary.
How Does Florida's Defined Contribution Plan Work?
Teachers who elect to join Florida's DC plan, or who are enrolled into the system by default, contribute 3 percent of their salary annually to the fund, while their employer contributes 3.30 percent for benefits, plus another 3.56 percent toward the defined benefit plan's unfunded liabilities. As a result, 6.60 percent of a teacher's salary is contributed to their DC retirement account annually. Under the DC plan, teachers vest after completing their first year. This means that after their first year, a teacher is eligible for both their own and their employers retirement contributions.
Should a teacher leave the classroom after their first year, they can take the total sum of their retirement account with them. This leads to another important element of Florida's DC plan: it is fully portable. This means that teachers who leave Florida to teach in another state can bring all their retirement funds with them. Teachers enrolled in the state's pension plan cannot do this, which may result in lower retirement earnings over their career if they move across state lines.
How Are Teacher Pensions Calculated in Florida?
Participants in the pension plan earn benefits derived from a formula. The figure below illustrates how a teacher pension is calculated in Florida. It is important to note, however, that the state assesses an educator’s final salary based on their highest 8 years average salary. 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 40 percent of their final salary.
Calculating Teacher Pension Wealth in Florida
|1.6% Multiplier||X||Avg. highest 8 years of salary||X||Years of service|
Who Qualifies for a Teacher Pension in Florida?
Like most states, teachers need to serve a number of years before qualifying for a pension. Florida's pension fund has an 8-year vesting period. While educators qualify for a pension after 8 years of service, the pension may not be worth all that much. Moreover, educators can’t begin to collect it until they hit the state’s retirement age.
The state sets specific windows when teachers can retire with benefits based on age and years of experience. New teachers starting out in Florida can retire with their full benefits at age 65 and with 8 years of service, or at any age after accruing at least 33 years of service.
Additionally, Florida allows early retirement once a teacher has 20 years of experience. However, teachers taking that option will have their benefits reduced by 5 percent for each year that they retired before the normal retirement age.
How Much Does Florida's Teacher Pension Plan Cost?
As they work, participants and their employers must contribute into the pension plan. Those contribution rates are set by the state legislature and can change year-to-year. In 2019-20, teachers contributed 3 percent of their salary to the pension fund, while the state contributed 6.75 percent. However, not all of that employer contribution goes toward benefits. The state contributes just 3.19 percent toward benefits, and the remaining 3.56 percent state contribution goes toward the pension fund's unfunded liabilities.
Finally, in Florida, as with most states, teacher pensions are not portable. This means that if a teacher leaves the plan, 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 have 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 educator who leaves teaching altogether or who crosses state lines to work in another state.
As with most state pension funds, Florida's teacher pension plan provides the greatest benefits to teachers who stay the longest, while leaving everyone else with inadequate benefits. With that in mind, teachers participating in Florida's pension plan should think carefully about their career plans and how they interact with their 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.