Opinion: Pensions may not make sense for Georgia’s younger teachers

AJC Photo / Ben Gray

Earlier this summer, my AJC colleague James Salzer broke the news that Georgia expects to have to increase its payment into our Teachers Retirement System by as much as $400 million next year. That’s on top of a $233 million boost this year, which pushed the annual payment above $1.5 billion.

At $1.9 billion, the pension payment would represent about $1 of every $13 the state spends. That’s not one dollar out of every 13 spent on k-12 education, but out of the entire state budget: schools, colleges, health care, roads, bridges, troopers, prisons, all of it. But as you try to wrap your mind around those numbers, you can at least take comfort knowing all that money keeps teachers in the profession longer, to the benefit of students. Right?

Not necessarily. According to pension-system financial reports, the state expects just one of three new teachers to stick around as long as a decade, the time it takes to vest in the pension plan. Worse, four of five are expected to lose money on their pension deal because they won’t teach long enough to break even.

Those sobering figures come from Bellwether Education Partners. The Washington, D.C.-based consultancy reviewed financials for all 50 states, plus the District of Columbia, and found Georgia isn’t alone.

“What we found is no state assumes teachers are responding to the state’s vesting period in order to qualify for a pension, which means either they don’t know about it or they don’t value it enough to change their behavior (and) for the states to change their financial models,” Chad Aldeman, a co-author of the Bellwether study, told me by phone recently.

“Occasionally, people claim retirement plans are a recruitment and retention tool,” he added. “I think my takeaway is we shouldn’t think of retirement plans as a tool to manipulate the work force. I think we should (recognize) all workers need to plan for retirement, and we should shape plans with that in mind.”

Most states have shorter vesting periods; five years is most common. Yet Georgia is right around the median when it comes to the percentage of new teachers expected to break even. In fact, on average states with shorter vesting periods expect just 23.4 percent of their teachers to break even, barely above Georgia’s 20 percent. Georgia’s also in the middle as far as teachers expected to reach the normal retirement age, even though just one in six is expected to do so.

If pensions aren’t a great deal for teachers, why do education advocates guard them so fiercely when 401(k)-style alternatives are proposed? Maybe it’s because pensions were a better deal for past generations. (Gov. Nathan Deal’s Education Reform Commission reported the 10-year survival rate for teachers who began in 2005 was somewhat higher, at 44 percent, though that still implies well over half of that cohort will never break even.) Maybe it’s because teacher advocacy groups tend to reflect the views of those who are lifers, and therefore more likely to see a benefit from pensions. Maybe the pension system’s forecast is wrong (it happens).

Maybe it’s because we don’t see, and thus can’t quantify or hear from, the people who never get into teaching in the first place because they aren’t attracted to the traditional bargain of lower salaries but generous, guaranteed retirement pay.

In any case, taxpayers may soon have 1.9 billion reasons to ask whether pensions still make sense. And teachers — all of them, not just the lifers — have every reason to make sure we get the answer right.

Reader Comments 0

92 comments
DerekGator
DerekGator

We need pension reform.  Just like social security, you should not be able to start collecting your full pension until you are 67.  Too many teachers quit working in their mid 50's and start collecting full retirement.  If they live to be in their mid 80's, they will have collected a full pension for more years than they worked. 

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Billisnice
Billisnice

GA is already among the worse states for health care. As soon as teacher buy into 401K's good teachers at the borders will exit to other states to teach for better benefits.

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Wascatlady
Wascatlady

I am not sure what this means by "break even."  If you leave before being vested, can't you withdraw the money YOU have put in?


Doesn't "being vested" mean you can, at some date, qualify for a pension, no matter how small?  And if you move to another state, can't your share of the "investment" be transferred?

Beery
Beery

@Wascatlady 

That was my question, too; what does "break even" mean  in this context?

You are correct; TRS members who leave before vesting receive the funds they contributed, plus interest. 


And to respond to an earlier poster, the full retirement "age" is 30 years of service, or age 60 (if you have vested).


Early retirement is at 25 years of service, but the pension is reduced by 7% per year of age under 60 or year of service under 30.

Beach Bound2020
Beach Bound2020

@Beery @Wascatlady If a teachers leaves early and gets their payout and doesn't put it into a qualifying account they are taxed so heavily on the money.  401Ks are far more portable with more options if you leave your employment.  I've seen teachers leave with less than 10 years and blow the money and it's sad. Some come back to teaching because of that.  Further, in systems where Social Security is not paid, not only are they out a pension but also the servicable years of credit to Social Security.


Also the interest is only on their contribution part.  A 401K would let them leave with all of their money, all employer contributions and all interest on all of the money.  A far better option for a generation of teachers unlikely to work 30 years.


I think at least it should be offered as a choice.

Beery
Beery

@Beach Bound2020 @Beery @Wascatlady 

Univesrity system employees have that choice: either a defined benefit system (TRS) or a defined contribution plan (403B). Not sure if K12 employees have the same choice.

mudcop
mudcop

You are incorrect in your statement. University system employees are actually under a different retirement system than TRS. They are under a retirement plan available only to post secondary education employees and State of Georgia employees called ERS.

Also university system employees do not have to choose between participating in either ERS or a 403(b) plan. All government employees are allowed to participate in BOTH their state retirement plan whether they're under the TRS, ERS or PSERS retirement system and the 403(b) plan. The difference is that the state puts no money into TRS and ERS covered employees 403(b) plans. The only money in those plans is what you put into it yourself.

The only 403(b) plans with government money contributed as well as the employees' contributions that I am aware of are employees under the PSERS retirement system, a very crappy retirement plan. However the amount of money contributions made to the 403(b) plan for these employees is dismal. It's known as the "2 for 1" 403(b) supplemental retirement plan - a fixed interest rate plan that the employee contributes 1% of their salary and the govenment agency contributes 2% of their salary with a 10 year vesting.

Beery
Beery

@mudcop Actuallly, you are incorrect. University System employees have a choice between TRS, a defined benefit plan (we are NOT in the ERS system) and a defined contribution plan. Both the employee and the employer (USG) contribute in both of these plans.If a USG employee chooses TRS, we can also choose to contribute to an optional 403B plan (but with no match from our employer)..

Billisnice
Billisnice

Part of your 401K will make its way back in politicians hands in the form of lobby $. Deal is pushing GA Teachers on Blue Cross Blue Shield. They helped his campaign.

waitaminute3210
waitaminute3210

@Billisnice I am not a teacher, but I've had BCBS for many years and extremely happy with it. Never met a provider who didn't like it.

Kyle_Wingfield
Kyle_Wingfield moderator

@Billisnice "Part of your 401K will make its way back in politicians hands in the form of lobby $."

As will part of your teacher "association" dues.

Wings9
Wings9

@Kyle_Wingfield @Billisnice How many teachers in Georgia percentage wise are in "associations"?  Also still waiting for you to clarify "break even".

dg417s
dg417s

Being that I work for the government, it's inherently political. I'd be crazy not to have people advocating for what's best for my students and my working conditions. I can't always leave my classroom to work the ropes myself.

TheCentrist
TheCentrist

Organizations used pensions as a way to justify paying lower salaries.  Now some just pay lower salaries and allow employees to take control of their own retirement..Wink, Wink.

Billisnice
Billisnice

Alabama has a 25 year retirement at 50%. GA need to cut the years from 30 to 25 also.

Wascatlady
Wascatlady

@Billisnice You can retire in GA with 25 years as long as you are 62 (I think). OF course, you only get 50% of your 2 highest consecutive years.


The "austerity cuts" (messed) it up badly for a lot of us. 

Billisnice
Billisnice

The average 401(k) balances reported by Vanguard and Fidelity — around $95,000 in plans administered at both firms. How long will it last with healthcare, etc. Not long.  Over time you wipe out a middle-class segment in GA. 401K benefits wall street mainly. Trump is working hard to not implement the Fiduciary Rule where your advisories have to work in your best interest instead of trashing your money on bad stocks, etc.

Visual_Cortex
Visual_Cortex

@Billisnice

Our nation's 30-year experiment with replacing defined pensions with 401(k)s is an unmitigated disaster.

Kyle_Wingfield
Kyle_Wingfield moderator

@Billisnice 1. What is the average age of those account holders?

2. What is the average number of accounts held? (I'm 38 and have three myself. That doesn't include my wife.)

3. How many of those account holders also participate in some kind of defined-benefit plan? 

4. How many of them also have IRAs? (Putting some money in a Roth IRA is a good way to hedge against future tax-rate increases.)

In short, that $95,000 figure tells us next to nothing about whether 401(k)s are a good thing.

Kyle_Wingfield
Kyle_Wingfield moderator

@Billisnice Some slippery language in the headline aside (the headline says "average American," but the actual article makes clear it's "average account") that article doesn't answer my questions. Except that it points to the fact people closer to retirement have, on average, considerably more than $95,000 (again, in any particular account). And if the average number of accounts per couple closer to retirement is three or four (which might be a conservative number, given the way people have changed jobs over the past 30 years vs. the past) then they could have saved closer to $1M on average. That's on top of SS, and any defined-benefit plan they may have.


Kyle_Wingfield
Kyle_Wingfield moderator

@dahreese @Billisnice The source document (from Vanguard) explains why that $95,000 figure may be misleading: "In 2015, Vanguard participants' average account balances declined by 6% and median account balances fell by 11%. Two factors are driving the decline in participant account balances. The first is changing business mix--new plans converting to Vanguard in 2015 had lower account balances. The second is the rising adoption of automatic enrollment, which results in more individuals saving but also in a growing number of smaller balances."

Kyle_Wingfield
Kyle_Wingfield moderator

@JFMcNamara All my previous questions still apply to this. We are talking about average account balances. No one seems to know how many accounts the average person has -- but I'm willing to bet it's more than one.

BurroughstonBroch
BurroughstonBroch

Before I retired I was vested in an employer pension plan that failed in the 1980s because the employer bankrupted. That's the risk with a pension plan, and plenty of government pension plans have failed or are at risk.

Under the 401k scheme you are not at risk if your employer fails. This is a plus for the 401k scheme.

Another plus is that the 401k account balance is portable. I had 401ks with four different employers over the years; the three earliest ones I moved to Fidelity and Vanguard after I left the employer and the last is still with my last employer. I could move it tomorrow if I chose.

.

jhgm63
jhgm63

@BurroughstonBroch That is not quite true. Many a 401k plan has failed because they were heavily invested in the employer's stock. If the employer's stock tanks, so does your 401k - WorldCom and Enron were prime examples.

BurroughstonBroch
BurroughstonBroch

True enough in the past, but not so much today. Enron bankrupted 16 years ago and MCIWorldcom a year later. Shame on anyone holding company shares in a 401k since there has been plenty of warning.

BurroughstonBroch
BurroughstonBroch

@TheCentrist @BurroughstonBroch  Absolutely, 15-16 years in the examples I stated. Current with the looming failure of the State of Illinois and Central State Teamster's pension plans. Regardless of whether you participate in a pension or 401k plan, you should stay up to date and informed. I was a 401k trustee before I retired and a lot of our work was communicating with employees.

dahreese
dahreese

@BurroughstonBroch @TheCentrist 

The problem is, that most people do not keep up, including many teachers. I cannot on both hands, count the number of times a teacher has asked me (when I was teaching) to explain the retirement system to them. 

Some thought they had to take whatever was the balance of their retirement as they walked out the door. 

One retired, took out all of her retirement principal, invested it in Wall Street and lost it all when the economy collapsed. 

Others....well, I've said enough. 


The average person doesn't keep up with his/her retirement account.

OriginalProf
OriginalProf

I just want to point out that the members of TRS aren't only the public K-12 teachers, but also most of the faculty, staff, and administrators of the University System of Ga.  If you're talking about a different retirement system, they need to be taken into account too. It weakens the entire TRS if you limit its number of future members.

dahreese
dahreese

@Kyle Wingfield; "The question is really more about whether a different system, or at least an optional alternative, would be more appealing to potential teachers."

The 'fact' is that the 'optional alternative' is an attempt by hot shot Wall Street investors to get risk free money from ignorant investors, "free money" that they can't be gotten from a bank. As I posted to JohnnyReb a moment ago, It is statistically impossible for everyone, including teachers, to become a winner from 401Ks by choosing their investments.  

dahreese
dahreese

@Kyle_Wingfield @dahreese I admititedly am not knowledgeable enough with the latest facts to answer that. Most of those teachers who leave shouldn't have been there in the first place; it wasn't their calling to put up with all the problems; discipline, inept administrators, school boards. And I doubt that most of them are doing all that much better in their 'new' job, including retirements. Recall that a lot of people lost their 401k retirements when the economy collapsed.


Fortunately, Georgia teachers did not, thanks to well invested 'conservative' investments.

Kyle_Wingfield
Kyle_Wingfield moderator

@dahreese The point is, only 20% of teachers break even on pensions, and one would reasonably expect a higher proportion to do at least that well with 401(k) investments -- which, as JohnnyReb pointed out, can be very conservative (if perhaps not "no-risk").

dahreese
dahreese

@Kyle_Wingfield @dahreese 

Makes you/us wonder just why they got into teaching in the first place, doesn't it. 

When the Georgia legislature meets in 2018, there will no doubt be someone again who wants to 'redirect'  teacher retirements towards the 'open market.' 


And I have to ask myself, are they really all that interested in the successful retirements of Americans, or just going along with the political flow; "privatize everything."


Thanks for what you do.

Kyle_Wingfield
Kyle_Wingfield moderator

@dahreese "When the Georgia legislature meets in 2018, there will no doubt be someone again who wants to 'redirect'  teacher retirements towards the 'open market.' "

Where, exactly, do you think the pension funds are held today? In Treasuries? Under a mattress?

dahreese
dahreese

@Kyle_Wingfield @dahreese 

Granted to you, pension funds are invested in the 'open market.' But since I am concerned with Georgia teacher pensions, and my own in particular, I have watched every year as the base funds of Ga TRS have grown; and they have done so because of professional investors hired by Ga TRS, as opposed to an unqualified individual choosing his/her 401K investments. 


We can disagree that those Ga politicians have the best interests of Georgia teacher in mind with 'alternative investments.'