Here in the United States, most public school teachers participate in traditional defined benefit pension systems. But that fact hides several points of nuance. Here are five key points to remember about teacher pensions:

1. Most public school teachers participate in a traditional defined benefit (DB) pension plan

Unlike teachers in private schools, the Bureau of Labor Statistics reports that 89 percent of “primary, secondary, and special education school teachers” employed by state or local governments participate in a defined benefit (DB) pension plan.

That figure is down slightly from 2009 when 94% of public school teachers participated in DB plans. Those numbers will change over time as more states transition to alternative retirement plans such as defined contribution or cash balance plans.

Some states give new teachers a choice over which type of retirement plan they prefer. Still, the new plans usually only apply to new workers, so participation rates will likely fall slowly as more states transition away from the old DB pension model.

2. Enrollment in a pension plan does not necessarily guarantee teachers receive a pension

States impose rules called vesting requirements that determine how long a teacher must stay before qualifying for a pension.

The majority of states require teachers to serve for five years before qualifying for a pension, and 16 states require teachers to serve for ten years. Due to relatively high early-career turnover, large numbers of teachers won’t reach these vesting requirements. 

In the median state, about half of all new teachers won’t stay long enough to qualify for any pension at all. (See the numbers for your state here.) Whether they decide to switch jobs, move to another state, or leave the workforce entirely, many teachers remain in their pension plan. But they may never actually receive a pension.

3. Even after qualifying for a pension, some teachers will cash out

Merely qualifying for a pension does not say much about how large that pension will be, and many teachers decide they’d rather withdraw their contributions than wait to draw a pension when they reach retirement age. 

For example, a 40-year-old teacher with ten years of experience would likely qualify for a pension, but she may not be able to collect those payments until she turns 60 or 65. Her pension at that point will be based on the salary she earned while she was 40, and inflation will have worn away its value significantly. (For a longer explanation of how this works, see here.)

This issue isn’t as true for older teachers closer to retirement, but they may still decide they’d prefer a lump-sum withdrawal payment over monthly pension checks in retirement.

These are complicated decisions, and teachers should consult a financial professional to help determine what’s best in their unique circumstances.

4. Unlike private-sector workers, not all teachers are covered by Social Security

About 40 percent of public school teachers, or about 1.2 million teachers nationwide, are not covered by Social Security. 

Those teachers live in 15 states— Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas—and the District of Columbia, where many or all public school teachers neither pay into nor receive benefits from Social Security. 

Teachers in those states face substantial uncertainty and must rely more heavily on their employer retirement plans (state pensions) and personal savings.

5. The “average” teacher pension can be modest, but that can be a misleading statistic

While there’s a debate about whether teacher pension plans are too generous, that debate is skewed by who ends up receiving benefits.

Going back to our earlier example, for a teacher who quits working at age 40 with ten years of service, her pension is likely to be relatively modest by the time she’s eligible to collect her benefit. 

In contrast, some long-serving, highly-paid employees wind up with pensions that surpass $100,000 a year or more. Many people prefer the former to the latter, but calculating the statistical average combines them into one number.

Today’s teacher pension plans are costly, but the bulk of those costs will pay down unfunded liabilities, not for actual benefits for teachers. Once we take out the debt costs that states and districts are paying, the total retirement savings provided to teachers start to look worse. 

Moreover, pension plans unevenly distribute benefits. Some lifelong veteran teachers and school district administrators qualify for generous pensions, while the bulk of teachers will receive far less.

Educators, do you want to learn more about pensions?

Teachers may take comfort with the fact they’re enrolled in a pension plan.

Still, they should check the fine print and consult a financial advisor to determine how long they need to stay in their respective pension plan to secure a solid foundation of retirement benefits.

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