Behind the Headline: Many Teachers Face a Retirement Savings Penalty When Leaving the Profession

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Many Teachers Face a Retirement Savings Penalty When Leaving the Profession
5/17/14 | Washington Post

Behind the Headline
Golden Handcuffs
Winter 2010 | Education Next

In an op-ed in the Washington Post, Andy Rotherham and Chad Aldeman point out how teachers are punished by poorly structured retirement policies. In a new study, they estimate that

in the median state, more than half of all teachers won’t qualify for even a minimal pension. Fewer than one in five teachers will work a full career and reach the pension plan’s “normal retirement age.” Most will leave their public service with little retirement savings.

They note

This story doesn’t fit with the popular perception of teacher pensions as more generous than private-sector retirement benefits. That’s because the real story of teacher pensions today involves a small number of relatively big winners and a much larger group of losers.

A study by Mike Podgursky and Bob Costrell that was published in Education Next calculated the redistribution of pension wealth from teachers who leave their school districts early to teachers who stay in their school districts longer.

We compare existing defined benefit (DB) teacher pension systems to fiscally equivalent systems that treat all teachers equally and find that the former often redistribute about half the pension wealth of an entering cohort of teachers to those who separate in their mid-50s from those who leave the system earlier. We then show that this back loading produces very large losses in pension wealth for mobile teachers. Compared to a teacher who has worked 30 years in a single state system, a teacher who has put in the same years but split them between two systems will often lose well over one-half of her pension wealth.

They conclude, “It is difficult to justify such a system of rewards and penalties on grounds related to fairness or teacher quality.”

-Education Next

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