The month of August is when teachers and school personnel across the country prepare to head back to school. As these valuable members of our communities get ready for another school year, we can do one thing to thank them for their careers in public service: protect their pensions!
The data shows that pensions are the best vehicle to provide a secure retirement for our nation’s public educators. A study from the National Institute on Retirement Security and the University of California Berkeley Center for Labor Research and Education that analyzed teacher pensions in six states (Colorado, Connecticut, Georgia, Kentucky, Missouri, and Texas) found that defined-benefit pensions provide a more secure retirement than defined-contribution plans such as 401(k)s.
Pensions have significant advantages over defined-contribution plans. Pensions allocate a modest, yet guaranteed, retirement benefit based on a formula that includes a worker’s years of service, final average salary, and a benefit multiplier. Unlike a 401(k), pensions collectively pool investment risk among participants, which leaves them less vulnerable to market fluctuations. Pensions are also managed by financial professionals with years of knowledge and experience who can ensure the fund earns optimal investment returns over time. Finally, pensions offer lower administrative fees than a 401(k), keeping more of retirees’ hard-earned money in their pockets so they can afford the cost of everyday expenses like groceries, healthcare, and housing. As a result, eight out of 10 public educators surveyed throughout the six states can expect to earn benefits that are greater in value than what they would receive in a 401(k).
Not only do pensions create retirement security, they also help state and local governments recruit and retain highly qualified public educators. The same study discovered that two out of three teachers will spend at least 20 years teaching in their home state, and that switching teachers to a 401(k) plan could lead to higher costs. “Policymakers should understand that pensions exert a clear retention effect on experienced teachers—lowering teacher turnover, easing schools’ staffing pressures, and contributing to education quality,” the report states.
As educators and students alike prepare to head back into the classroom, defending teachers’ pensions should be a homework assignment that we should all complete.