Retirement Security Is Higher for Veteran Teachers Than for New Entrants

New teachers are getting the short end of the chalk on retirement benefits.

For teachers entering the profession, retirement security is becoming precarious, according to a new report from Equable Institute. The report, The National Landscape of Teacher Retirement Benefit Security,” issued as part of Equable’s “Retirement Security Report Teacher Edition,” measured the quality of benefits being offered to K–12 public school teachers in the United States—including pension, defined contribution, guaranteed return and hybrid plans.

Discrepancies for plan quality exist not only between but also within retirement benefit plans, the report found. Many teachers have access to a pension and 403(b) DC plan. Within teacher state pension systems there are different vesting schedules, benefits and retirement income amounts. This has led to widely different levels of retirement preparedness for pension plan participants, says Anthony Randazzo, executive director at Equable and lead author of the report.

“Over the past 15 years, many state governments have introduced new levels of pension benefits for incoming teachers—like Illinois creating ‘Tier 2’ or New York creating ‘Tier 6,’” he says. “The retirement plans for new teachers typically have less valuable provisions and require teachers to work longer to qualify for receiving pension checks, compared to their peers hired a few years before them.”

To measure the security of retirement prospects for K-12 educators, the report defined retirement security—among teachers with varied years of service—as having retirement income of at least 70% replacement of pre-retirement income. The benefit provisions of each retirement plan were measured against a common set of standards, benchmarks and best practices, according to the report.

The Retirement Benefits Score comprises three sets of criteria:

• Eligibility, or how long it takes for a teacher to be fully vested in their retirement plan;
• Income Adequacy, or how benefits measure up against the accumulation pattern necessary to reach a 70% pre-retirement income replacement rate by age 67 or the normal retirement age of a plan; and
• Flexibility and Mobility, or how well a retirement plan’s provisions support a worker being able to take employer contributions and accumulated benefits with them if they move to another job or to another state.

“One of the largest problems is that most teacher retirement plans are only designed to work for people who’ll spend their entire career working in one state, which is increasingly rare,” Randazzo explains.

Retirement plans that earn 75% or more of available points are defined as “serving members well,” while plans that earn between 50% and 75% of available points are “serving members moderately” and plans that earn less than 50% of available points are defined as “not serving members well,” as defined by the report.

The report found that for full career workers, 219 of 264 classes of retirement benefits for teachers serve members well; for medium-term workers, 12 out of 264 plans serve teachers well; and for short-term workers, two out of 264 plans serve teachers well. The report defines full career workers as teachers or public-school employees who work their entire career enrolled in a public retirement plan in the same state; medium-term workers as employees who are enrolled in a public retirement plan in the same state for 10 to 20 years of service; and short-term workers as employees who participate in a public retirement plan in the same state for 10 years of service or less.

“Teacher retirement benefits are out of step with the modern workforce,” says Randazzo, “[F]or new teachers joining the workforce today … the value of their benefits when they reach normal retirement will be 13% less on average than for a teacher hired in 2005, even if they work a full career. For the two-thirds of teachers who won’t work a full career—for reasons like leaving to care for their families, relocating, becoming disabled or entering the profession late in life—they generally are not provided with retirement benefits that provide a path to retirement income security.”

The 13% decline equals $100,000 less in what teachers can expect from their future retirement income compared with their veteran peers, the report found.

“When looking at the average expected value of pension benefits for full career teachers, the value of what is getting promised to new generations has been falling year after year, to the lowest point in modern history,” Randazzo explains.  

While there are “good plans in some states” that serve teachers well, “most states are not serving the bulk of their teacher workforce well when it comes to offering retirement benefits,” Randazzo adds.

For example, teachers who started in the classroom in 2005 can expect that the average lifetime value of their pension will be around $768,000 when they reach normal retirement, the report states, whereas teachers hired during the 2022-23 school year and enrolled in a pension plan are only going to earn a pension worth $668,000 of lifetime benefits by the time they reach normal retirement age.

The report also notes that “in Illinois, teachers hired on or before December 31, 2010, can expect to earn a pension benefit that is roughly twice as valuable as for those hired on January 1, 2011, or later.”

This edition of the report, focused on teachers, was modeled on the first edition of the “The National Landscape of Public Employee Retirement Benefits,” with portions that were drawn from that paper, which studied all public workers. Equable Institute is a bipartisan nonprofit, based in New York City, focused on retirement security for public workers.