A recent study from researchers at the University of California, Berkeley, confirmed what we here at NPPC already know: traditional defined benefit pensions provide more retirement income for teachers than 401(k)-style plans. This comes as a surprise to no one. Defined contribution 401(k)-style plans are inherently risky because they depend so heavily on stock market returns. One sudden downturn in the market- like the Great Recession- and an entire life’s worth of retirement savings could be gone. Defined benefit pensions, on the other hand, collectively pool risk so a teacher who has dedicated thirty years to educating children doesn’t have to worry about suddenly losing all of his savings.
The UC-Berkeley study specifically looked at the California State Teachers’ Retirement System and its defined benefit pension plan. One key benefit of pension plans like CalSTRS: they are an excellent workforce management tool. Pensions encourage teachers to stay in the profession long-term, which benefits their students, but it also enables teachers to retire when it is time because they don’t have to work extra years trying to scrape together enough retirement savings.
Among the other key findings from the study:
- For 86 percent of California teachers, the pension plan offered by CalSTRS enables them to earn more retirement income than they could with a 401(k)-style plan
- 75 percent of California teachers will have been covered by CalSTRS for 20 years or longer and 49 percent will retire with 30 or more years of service
- Of those teachers who leave before fully vesting in their pension, most will leave the teaching profession altogether. These early leavers account for just 6 percent of teachers
Some anti-pension ideologues like Josh McGee, who we highlighted last week, incorrectly argue that most teachers don’t stay long enough to earn their pension. This new study from California repudiates that argument. As it does for firefighters, nurses, and countless other public employees, a defined benefit pension remains the best way to ensure retirement security for teachers in California and elsewhere.