Snapshot of Teacher Retirement
New York State Teachers' Retirement System
Average pension value (2018): $43,432
Median pension value (2018): $51,3600
Vesting Period: 10 Years (Tiers 5 and 6)
Teacher Contribution Rate (2019): Varies by salary
Employer Contribution Rate (2019): 10.62%
Participation in Social Security: Yes
How Do Teacher Pensions Work in New York?
In New York, teachers are a part of the New York State Teachers' Retirement System. The system was formed in 1921. New York City teachers, however, participate in a separate system strictly for educators in the city.
The basic structure of New York State's teacher defined benefit (DB) pension 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, it is determined by a formula based on their years of experience and final salary.
Finally, most states, including New York, have adopted multiple benefit tiers for teachers depending on when they were hired. NYSTRS has 6 benefit tiers. Teachers hired since April 2012 are in Tier 6. A breakdown of the tier membership can be found here.
How Is the Tier 6 Teacher Pension Calculated in New York?
Pension wealth is derived from a formula. The figure below illustrates how a teacher pension is calculated in New York. It is important to note, however, that the state assesses a Tier 6 member's final salary based on their highest 5 years average salary. For example, a teacher who works for 20 years would be eligible for an annual pension benefit worth 35 percent of their final salary. Every additional year after 20 is worth an additional 2 percent.
Calculating Pension Wealth for New York's Tier 6 Teachers
|Multiplier||X||Average 5 years of salary|
Multiplier differs by years of service
Less than 20 years
At 20 years
More than 20 years
2% each year after 20
Who Qualifies for a Teacher Pension in New York?
Like most states, teachers need to serve a number of years before qualifying for a pension. Under Tier 6, New York imposes a 10-year vesting period. While educators qualify for a pension after 10 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. Tier 6 teachers can retire with a reduced benefits at age 55 with at least 10 years of experience, but they must wait until age 63 to retire with full benefits.
How Much Does New York's Teacher Pension Plan Cost?
As they work, teachers and their employers must contribute into the plan. Those contribution rates are set by the state legislature and can change year-to-year. Tier 6 teachers have a variable contribution rate based on their salary. The table below created by NYSTRS illustrates the various contribution rates.
In 2019, employers contributed 10.62 percent of salary to the pension fund. While all of a teacher's contributions are for benefits, a share of the employers' contributions goes to pay down the fund's debts. How much will vary from year to year.
Finally, in New York, as with most states, teacher pensions are not portable. This means that if a teacher leaves NYSTRS, 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, New York'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 New York 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.