We set out to grade each state based on how well they deliver retirement benefits to their teachers. We found that, in too many states, current retirement systems are designed in ways that systematically disadvantage large groups of teachers and impair the ability of schools to recruit, hire, retain, and compensate high-quality teachers.
To measure the extent to which states have created retirement systems that match and adequately support their teachers, we created a grading rubric focused on two questions: 1. Are all teachers earning sufficient retirement benefits? And 2. Can teachers take their retirement benefits with them no matter where life takes them? Our rankings use an equally weighted grading system comprising the six variables outlined below.
Based on our analysis of Maryland’s teacher retirement plan, it earned an overall grade of F. Maryland earned a F for providing adequate retirement benefits for teachers and a F on financial sustainability. Read below for how Maryland did on each variable, or go here for a longer description of the variables and comparisons to other states.
1. Vesting period: Maryland has a 10-year vesting period, meaning new teachers must stay 10 years to qualify for at least a minimum pension. Based on our estimates using state data, only 42.8 percent of Maryland teachers will qualify for employer-provided retirement benefits. Teachers who leave the plan before then must forfeit contributions their school or state made on their behalf.
2. Break even: Nearly every state requires teachers to contribute toward the cost of their retirement benefits, but most teacher pension plans are so back-loaded that teachers must work many years before their future benefits exceed the value of their own contributions plus interest. Even teachers who qualify for a minimal benefit often fail to reach this “break-even” point. We estimate that in Maryland, only 27 percent of teachers will break even from the state retirement system.
3. Social Security: Social Security offers a solid foundation upon which states should build their own accompanying retirement plans. States alone can’t match the national portability or progressivity of Social Security. Unfortunately, Maryland does not ensure all of its teachers have access to Social Security benefits.
4. Portability: In today’s world, workers are likely to have multiple jobs, and they need to be able to cobble together enough savings at each stage along the way in order to afford a secure retirement. Teachers are no exception, and they should be able to take their savings with them no matter why they elect to leave the classroom, whether for personal reasons, as a career change, or to continue teaching in a different state. While a majority of states still trap teachers in back-loaded defined benefit pension plans, some have created more portable options. Maryland is not one of them; it continues to enroll all teachers in a back-loaded defined benefit pension plan and does not offer its teachers a more portable option.
5. Retirement contributions: We believe states should help teachers save enough each year while they’re working so that they can afford to live a comfortable, financially secure retirement once they’re done working. Most financial experts recommend workers save 10 percent to 15 percent of their annual salaries, including employer contribution, for retirement. Maryland contributes 4.6 percent of teacher salaries toward retirement benefits, which is below the national average and could leave teachers vulnerable to insufficient retirement savings.
6. Debt costs: The majority of contributions into teacher pension plans today are not going toward retirement benefits for today’s teachers; they’re mainly going toward unfunded pension liabilities. Those liabilities are the result of years of poor financial decisions by state leaders, and they leave today’s teachers (and students) paying for past mistakes. Today, 71.1 percent of Maryland's pension contributions are going toward pension debt. If it had been more responsible in years past, the state would not be facing such large financial penalties and could be directing more money toward teachers or other budget priorities.
To see how your state compares to other states, click here for our full rankings.
To learn more about your state’s retirement system, click here to go to your state plan’s site.