August 31, 2021

How Does Your State’s Teacher Retirement Plan Rank?

By Bellwether

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At Bellwether today we have a new ranking of teacher retirement plans for all 50 states and D.C.  In a nutshell we look across 15 dimensions – how long it takes to get a pension, do you have alternative and portable options, are state policymakers meeting their obligations to fund the plan, how much do teachers have to pay in, and so forth. And then we look at 4 profiles, short term teachers*, medium term ones, and long term teachers as well as taxpayers. The result is a composite ranking of how the states fare.

The laggard states probably won’t surprise, they have well known issues like excessive debt, they don’t put teachers in Social Security, and long vesting periods to even earn a pension. But the leader states might surprise. They’re a mix of states with traditional pensions and alternative systems. And that’s key, the debate about pensions versus 401(k)s misses that plan design matters more than plan structures. You can have good pensions and good 401(k)-style plans, and vice versa.

Money Magazine has an article about the rankings out this morning. And, they have a sidebar feature on teacher retirement savings that gets at the too often ignored issue of Social Security participation as well as too often scam-like 403(b) options.

Why does this matter? A few reasons. First, there are a lot of teachers, and millions more former teachers. That means their retirement security is a broader retirement security issue. Second, if we want the labor force students deserve we have to give that labor force a retirement system that doesn’t disadvantage them in their retirement savings. And third, of course, doing better here, and there is a lot of room to do better, no state got an “A”, is just the right thing to do.

*The trite take on short term teachers is, ‘who cares about people who only teach for say two years?’ And that’s certainly not a group you’re going to engineer your retirement system around. But as you can see in the ranking, many states have vesting periods of seven or 10 years. And if you move, say you’re a trailing spouse or life happens and you move somewhere else as a result, you could teach for 20 or 25 years but fail to vest in multiple places. Only about one in five teachers vests overall, that’s a problem!

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