As teachers across the country retire, their pensions are being subsidized by newly hired teachers to a surprising degree. Teachers’ pension plans have always rewarded long-serving veterans at the expense of short-termers. But now, as more and more plans develop shortfalls, states have been imposing cost-cutting measures, and recent research shows that the newest hires are bearing the brunt of the changes, raising questions of fairness.
The Plans Received Low Marks
The Urban Institute has graded America’s state-run pension systems on their performance in a few areas: their financial strength; how well they provide retirement security to short-term or long-term workers; the workplace incentives they offer various age groups; and whether participating branches of government are funding them properly. Grades for all types of public pensions are available on the Urban Institute’s website, where they can be filtered for individual strengths and weaknesses.
No states got an A and only six states received a B: Arkansas, Delaware, Florida, New York, Oregon and Wyoming. Most states — 33 — received a C, while six got a D. The last six — Connecticut, the District of Columbia, Kentucky, Massachusetts, Ohio and Rhode Island — each received an F.
Getting an F could mean the plan offers few rewards for younger workers, is less than 60 percent funded or pays meager retirement income relative to salary, among other problems. Rhode Island improved its plan enough in 2013 to get a B on the new version, but it still has so many people in the older, failing plan that the overall grade was an F.
How Plans Encourage Teachers to Retire in Their 50s
The typical teachers’ pension plan is backloaded, meaning teachers build up benefits slowly in their early years, then speed up and earn the biggest portion just before they retire. But teachers also contribute to their plans at a steady rate, and in the early years of a teacher’s career, a person’s contributions are often worth more than the pension credits earned. If teachers stay on long enough, they will eventually hit a break-even point, where the value of the pension that has been earned is greater than what was paid for it. Few teachers are able to do this, research shows.
Going in the Wrong Direction
To save money, many states have reformed their teachers’ pension plans. In most cases, these changes have pushed the break-even point farther out into the future. In Massachusetts, they pushed it so far out that no teacher can ever earn a pension greater than the value of one’s contributions, no matter how long he or she works.
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