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NIRS/Berkeley Labor Center Studies Teacher Pension Plans with 401(k) Plans

On January 7, 2019, the National Institute on Retirement Security (NIRS) and the University of California (UC) Berkeley Labor Center released their joint report, Teacher Pensions vs. 401(k)s in Six States: Connecticut, Colorado, Georgia, Kentucky, Missouri, and Texas. The report is intended to represent a diverse range of defined benefit pension structures and membership demographics across the U.S.

Specifically, the report analyzes teacher retirement system membership and actuarial data in six states. Using retirement system actuarial assumptions, the study examined teacher turnover patterns and projected the final tenure years of service at retirement or separation for current teachers. According to the report, pension plans have important retention impact and provide greater retirement security than 401(k) plans.

Some key findings include:

  • On average in the six states studied, teachers typically serve 25 years in the same state and are well-positioned to benefit from a traditional pension.
  • On average, about 80% of teachers in the states studied, a pension plan will provide more secure retirement income compared to a 401(k) plan.
  • In all six states studied, most teachers would require significantly greater contributions to realize the same retirement income in a 401(k) plan as the lowest-tier pension.

The report suggests some implications for any policymakers considering pension reform, including:

  • As the teacher shortage worsens, pensions positively affect retention, lower turnover and contribute to quality education.
  • The effect of shifting from pensions to 401(k)s and other account-based plans will increase turnover, greatly reduce retirement income and reduce future consumer spending.
  • To help ensure equity between short- and long-term employment teachers should consider restoring or augmenting portability provisions in existing pensions (i.e., service credit purchases, reciprocity, matching employee contribution refunds, or allowing non-vested employees to purchase lifetime income).

The report is available here.