About Teacher Pensions

Alternative Models

The debate between traditional pensions and 401k-style defined contribution plans like those more common in the private sector presents a false choice. There are other retirement systems that combine some of the best features of both types of plans and provide employees with security and portability. The federal government, for instance, has phased out its reliance on a traditional pension plan in favor of a hybrid retirement system that combines a less-generous pension, enrollment in Social Security, and a defined contribution plan. Other states have adopted similar hybrid models. 

Another alternative retirement structure called a cash balance plan combines many of the best elements of both defined benefit and defined contribution plans. Each year, the plan awards employees with a salary credit set at the fixed percentage of salary and an investment return credit that is set at some relatively safe percentage. When workers are ready to leave or retire, they can take their entire balance with them as a lump-sum payment or convert it to an annuity that would guarantee them monthly payments for life. Millions of workers in the private sector belong to a cash balance plan, and several states have adopted cash balance plans for their government employees.

In other words, the choices facing policymakers aren’t simply between a traditional pension and an ungenerous 401(k). There are viable alternate options, and structural changes from current plans can and should be favorable to teachers.