Snapshot of Teacher Retirement
Texas Teacher Retirement System
Average pension value (2018): $24,921
Median pension value (2018): $24,588
Vesting Period: 5 Years
Teacher Contribution Rate (2020): 7.71%
Employer Contribution Rate (2020): 9.48%
Participation in Social Security: Varies by district
How Do Teacher Pensions Work in Texas?
In Texas, teachers are a part of the Texas Teacher Retirement System, which includes all public employees. Texas's TRS was established in 1937.
The basic structure of Texas's teacher defined benefit (DB) pension is similar to that of other states. Unlike other types of retirement plans, a teacher’s contributions and those made on their behalf by the state or school district do not determine the value of their 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 Texas, have adopted multiple benefit tiers for teachers depending on when they were hired. A tier placement map is included in the member handbook. New teachers and the most recent hires in the state are enrolled in Tier 6.
How Are Teacher Pensions Calculated in Texas?
Pension wealth is derived from a formula. The figure below illustrates how a teacher pension is calculated in Texas. It is important to note, however, that the state assesses an educator’s final salary based on an average of their highest 3 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 57.5 percent of their average final salary.
Calculating Teacher Pension Wealth in Texas
|Avg. salary highest 3 years
|Years of service
Who Qualifies for a Teacher Pension in Texas?
Like most states, teachers need to serve a number of years before qualifying for a pension. Texas has a 5 year vesting period. While educators qualify for a pension after 5 years of service, however, the pension may still 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 full benefits at age 65 with at least 5 years of service, or at age 62 and with enough years of experience such that their age and years of service total at least 80.
Additionally, Texas permits early retirment for teachers:
- At age 55 with at least 5 years of experience;
- Those educators who have at least 30 years of experience but do not meet reach 80 when combined with their age; or,
- Before reaching 62 but with enough experience to total 80 when combined with their age.
How Much Does Texas'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. Teachers are required to contribute 7.7 percent of their salary to the pension fund. If their employers contribution drops below 6.8 percent, teachers contribution rates will be decreased proportionately. While all of a teacher's contributions go toward benefits, not all employer contributions are for benefits. Some share of that contribution goes toward paying down the pension systems unfunded liability.
Finally, in Texas, as with most states, teacher pensions are not portable. This means that if a teacher leaves Texas's TRS 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 may go on to 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. If Texas teachers decide to withdraw from the plan, they can take their own contributions with them, with a small amount of interest depending on their years of service, but they do not receive any share of the employer contribution. 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, Texas'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 Texas should think carefully about their career plans and how those goals 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.