As early as the turn of the 20th century, American legislators seemed to understand the importance of teacher quality to students’ education. A 1917 report on public education noted that, “A school teacher’s work is personal, direct, and positive. It works for the good or the ill of each pupil.”
Defined benefit (DB) pension plans were first introduced for teachers in the United States to help with the recruitment of high quality educators, and as an incentive to keep those educators in the teaching profession. By 1916, some form of retirement plan was available to public schoolteachers in 33 states. It was thought that such a retirement system might serve two purposes: 1)bringing more diverse, and highly qualified teachers into the profession; and 2) creating a more productive workforce that actually saves public employers money, as one dollar in pension benefits was seen as worth more than a dollar in salary.
Most public school teachers in Virginia have pension coverage through the Virginia Retirement System (VRS). VRS covers 146,690 active employees of public educational institutions, and 70,392 retired school employees and beneficiaries. Employees contribute 5% out of each of their paychecks to the pension fund. The average retirement benefit is $19,647 per year, or $1,637 per month. The pension replaces 51% of pre-retirement income for a teacher hired before 2010 with 30 years of service. Most experts find that a replacement ratio of 80% or more, from all income sources, is adequate for a secure retirement.
Teachers and most state employees hired after January 1, 2014 will participate in a hybrid DB/DC (defined contribution) plan with the DB component replacing 30 percent of pre-retirement income and getting benefits from contributions made by the employer and employee into a defined contribution account over that same period.
Public employees receive lower wages than their private sector counterparts. Even after accounting for pensions and other benefits, on average, state and local workers receive 7% less than those in the private sector.
More specifically, teachers are paid 14.3% less than comparable private sector workers—and this pay gap has increased in the last decade.
Teacher pensions play an important role in offsetting the financial impact of lower salaries.
Research shows that pensions are reliable and relieve retirement anxiety. Some 82% of Americans indicated that those with pensions are more likely to have a secure retirement, and 82% believe all workers should have access to a pension plan.
Pensions Help Retain Quality Teachers in Virginia
Better teachers are experienced teachers. DB pensions help to retain highly productive teachers longer, as compared with individual defined contribution (DC) accounts. Moreover, the cost of teacher turnover is quite high, both in terms of financial cost and loss of productivity to the school district.
• The cost of turnover in Virginia is $11,623 per teacher.
• 676 teachers are retained each year due to the defined benefit (DB) plan.
• The defined benefit (DB) pension system saved $7.9 million in teacher turnover costs in 2003 in school districts across the state.