Snapshot of Teacher Retirement
Kansas Public Employees Retirement System
Defined Benefit Plan
Average pension value (2018): $17,052
Median pension value (2018): $11,400
Vesting Period: 5 Years
Teacher Contribution Rate (2018): 6%
Employer Contribution Rate (2018): 12.63%
Participation in Social Security: Yes
How Does Teacher Retirement Work in Kansas?
In Kansas, teachers are a part of the Kansas Public Employees Retirement System, which includes not only teachers but all state employees. The KPERS system was established in 1962.
But unlike most states, new teachers in Kansas do not participate in a traditional defined benefit (DB) pension plan. Instead, they are enrolled in the state's cash balance (CB) plan. Rather than relying on a formula based on years of service and final average salary, as in a traditional pension plan, the Kansas CB plan invests employee contributions and guarantees a minimum return on those investments.
Kansas's traditional teacher pension plan, which applies to teachers hired before 2012, is structured similarly to the DB plans of other states. Unlike the CB plan, 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 benefit is not derived from the returns on those investments. Instead, it is determined by a formula based on their years of experience and final salary.
Finally, most states, including Kansas, have adopted multiple benefit tiers for teachers depending on when they were hired. Kansas' benefit tiers can be found here.
How Does Kansas's Cash Balance Plan Work?
All teachers in Kansas hired after 2012 are enrolled in the state's CB plan. Each year participating teachers contribute 6 percent of their salary to their retirement. The state manages these retirement funds and guarantees at least 4 percent annual interest. Additionally, teachers earn contribution rate "credits" based on their years of experience. These credits are earned quarterly and are more generous the more experience a teacher has. However, these employer credits are only available at retirement. The table below, created by KPERS, illustrates these retirement credits.
How Are Teacher Pensions Calculated in Kansas?
For Kansas teachers hired prior to 2012, their pension benefits will be derived from a formula. The figure below illustrates how the formula works in Kansas. It is important to note, however, that the state assesses an educator’s final salary based on the average of their 5 highest years of 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 46 percent of their final salary.
Calculating Teacher Pension Wealth in Kansas
|1.85% Multiplier||X||Avg. highest 5 years of years||X||Years of service|
Who Qualifies for a Teacher Pension in Kansas?
Like most states, teachers need to serve a number of years before qualifying for a pension. Kansas has a 5 year vesting period. 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 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 Kansas can retire with their full benefits when they reach 65 years of age and have accrued at least five years of service, or when they reach 60 years of age and have accrued at least 30 years of service.
Additionally, Kansas allows early retirement for teachers at age 55 once they have accrued at least 10 years of service. However, teachers taking that option have their benefits reduced based on their years of experience and how early they are retiring.
How Much Does Kansas' Teacher Pension Plan Cost?
As they work, pension plan participants and their employers must contribute into the plan. Those contribution rates are set by the state legislature and can change year-to-year. In 2018, teachers contributed 6 percent of their salary to the pension fund, while the state contributed 12.63 percent. In total, 18.63 percent of teacher salary was contributed toward Kansas' teacher pension fund. However, not all of that investment goes toward benefits. While the full 6 percent of salary contributed by individual teachers is for benefits, the state contributes only 2.08 percent toward actual retirement benefits. The remaining 10.55 percent state contribution is used to pay down the pension plan's unfunded liabilities.
As with most state pension funds, Kansas’ teacher retirement system provides the greatest benefits to teachers who stay the longest, while leaving everyone else with inadequate benefits. With that in mind, teachers in Kansas enrolled in the state pension fund 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.