Why Do Teachers Get Such Lavish Pensions?

Whenever the economic climate is depressed, teacher pensions, and that of other state workers are criticized for being far more generous than those in the private sector. Is this fair?

First some background. There are two kinds of pension programs whether public or private. Historically, defined-benefit plans have been around for decades. You spent your career working for a company which guaranteed a pension of some fraction of your final average pay. In recent years, though, companies have become leery of making promises that they don’t want to be saddled with far into the future. So, what is seen now, almost universally, is the defined-contribution plan. As a worker, you can put away some of your income into a pension savings account which is then matched (up to a limit) by your employer. This way the employer is making no promises beyond their monthly matching expense.

Teachers retiring now, hired decades ago, are almost certainly in the original defined-benefit plan. In many states, their benefit seems at first glance to be incredibly generous compared to the the defined-benefit plans of private sector workers. What the media does not report, though, is that in these states the teachers are not getting the Social Security benefit that the private worker does.

As with any pension, the Social Security benefit adjusts with one’s past salary over the years. But, right now the maximum is $27,876 if the retiree is single and $41,814 if married. To be fair, one must ADD to their private pension the Social Security benefit of the private worker. This is conveniently left out of news stories.  Also, I’ve never heard of a teacher pension that is increased by 50% if the teacher is married.

One more point. The Social Security benefit is tied to the Consumer Price Index so ratchets up with inflation each year. Teacher pensions may not be. This can make an enormous difference in the out years. Using the historical average inflation rate of 3.1%, a static pension will lose half its purchasing power in 23 years.  Oh, let’s not forget that much of one’s Social Security benefit is not taxed while all of a teacher’s pension is taxed.

 

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