You are here

News Update

New teachers must stay at schools for retirement perks

Thomas B. Fordham Institute's new report includes studies from the largest districts in D.C. and all 50 states
"(No) Money in the Bank: Which Retirement Systems Penalize New Teachers?" schools report from Thomas B. Fordham Institute.
"(No) Money in the Bank: Which Retirement Systems Penalize New Teachers?" schools report from Thomas B. Fordham Institute.

New teachers in many of the nation’s largest districts must continue to work at least 25 years to receive a positive return on their retirement benefits, according to a new report from the Thomas B. Fordham Institute.

The report, “(No) Money in the Bank: Which Retirement Systems Penalize New Teachers?” studied the largest districts in each of the 50 states and in the District of Columbia.

It found that in 35 districts, nearly 3 in 4 teachers will leave the profession before they can benefit from retirement—meaning they put more money into the system while they are teaching than what they will get back.

The typical retirement system in districts (43 states have them) is the defined benefit (DB) plan, which bears the highest penalties for leaving the job early, the report states. Only six states offer a 401(k)-type of defined contribution (DC) plan, where the benefit equals the teacher’s and employer’s contributions and the investment earnings.

Nine states offer hybrid plans that combine DB and DC plans, the report states.

States can offer three solutions, according to the report:

1. If you offer only a DB plan, add a portable account-based plan, such as a DC plan, and allow teachers to choose which plan is best for their needs and circumstances.

2. If you have multiple options, make the portable option the default. Given a high turnover rate of new teachers, few will stay long enough to realize the benefits of a DB plan.

3. Reduce benefit levels and increase wages. The current generation is much more mobile than previous generations.