With state pension systems remaining underfunded, more teachers are investing in supplemental plans to increase savings in hopes of ensuring financial stability after retirement.
About one-third of all teachers are now contributing to supplemental, voluntary investment programs called 403(b)s, which are designed for education and some nonprofits. They are similar to 401(k)s, says Bruce Corcoran, managing director of institutional development for the K12 market at financial services company TIAA-CREF.
The U.S. pension system has nearly $390 billion in unfunded liabilities, according to a 2012 report from the National Council on Teacher Quality. State funding for pensions fell in all but seven states between 2009 and 2012, the report found.
Retired school employees in most states receive defined benefit pensions and social security—the combination of which provides about 60 percent of their pre-retirement income, Corcoran says. But most experts say retirees need about 80 percent to live on, which is where supplemental plans can help, he adds.
“Administrators should give their employees the confidence to take full advantage of these programs, and understand that having a defined benefit plan and social security are positive but are not enough,” Corcoran says. “With small amounts of money invested wisely over time, we can pay an educator back for their service.”
In the past, older teachers at Fayetteville Public Schools in Arkansas felt they couldn’t retire because of healthcare costs. “We have a great pension benefit plan in Arkansas, but it is not designed to provide you with 100 percent of your pre-retirement income,” says Greg Mones, director of human resources. “A lot of our teachers didn’t know that.”
In early 2012, only 8 percent of Fayetteville school employees were contributing to a supplemental retirement plan. The district began holding voluntary seminars on retirement planning, but few people participated.
District leaders determined that using a single in-house supplemental benefits provider would best help employees plan for retirement and manage investments. Today, employees are auto-enrolled to put 1 percent of their income into a supplemental plan. Some opted out, but 85 percent of the 1,400 district employees now participate in these plans, Mones says.
Principal buy-in was key to convincing teachers to save more for retirement, Mones says. “Making it easy to start investing is very important,” he adds. “If you can start putting away that money as soon as you become an employee, you’ll never miss it.”