Our Principles for a Better Retirement for Teachers.
Any teacher knows that one size does not fit all when it comes to children or instruction. They know their students need to take lessons learned beyond their classrooms. And they know informed decision-making requires access to information and the skills needed to analyze it.
These same foundational principles that teachers live and apply every day in their classrooms should govern how teachers’ retirement benefits will provide and prepare them for a secure retirement. One-size-fits-all should not be the central design of retirement systems.
Yet today’s Teacher Retirement System is not serving the majority of teachers and public school employees well. Most Texas teachers (4 out of 5) don’t work long enough to earn a meaningful retirement. We need a system that works for every teacher.
Teachers should be allowed to opt into retirement benefits that they can take beyond any particular school in the state. And all educators should be given quality information on how to understand their retirement benefits and the role they play in financial security.
There are three universal and foundational principles that should guide the benefit design and practices of any system of retirement benefits:
Choice, Guarantees, and Agency
Teachers should have choices, including retirement options that offer guarantees and agency.
Teachers know they must differentiate their teaching to reach every student; our retirement system should reflect this same differentiation so that personal retirement circumstances can be taken into account. Teachers are a diverse group of individuals, who come to the profession at different stages of life and with different personal and family backgrounds. Rarely is there any financial or workforce plan that is appropriately one-size-fits-all, and retirement benefits are no different.
Teachers need choices that allow them to decide for themselves what they value most. Some individuals value knowing they will have a minimum guaranteed income for their retirement. Others want an option that could result in a larger retirement nest egg, recognizing that this may come with more investment risk. There is no reason that teachers can’t be given choices that reflect their personal and financial preferences. Those who prefer the comfort and stability of a guarantee can get that, while those who are comfortable with a more market-driven approach can get that too. There is no single retirement plan that works best for everyone.
Portability is Key
Teachers should have the ability to keep the retirement income they’ve earned throughout their career, no matter where they teach or for how long.
Retirement benefits are part of teachers’ compensation. They are earned in the same way that salary is earned. The idea that teachers lose these benefits because they move out of state is unhealthy for the profession and undermines teachers’ retirement security. There are many reasons teachers cross state lines, including having spouses in the military.
The idea that teachers have to lose and walk away from their retirement benefits because of their family circumstances or career choices is unacceptable. Retirement benefits should be designed so that every educator has the potential to accumulate future retirement income, even if they are only offering valuable service for 5, 10, or 15 years.
Far too many of Texas’ teachers are not on a path to retirement security because they have moved between states or changed careers. And this is a feature of the system, not a bug. The system counts on teachers paying in who will never receive retirement benefits—45 percent of new hires are expected to leave within five years, before they qualify for any future benefits.
We need a system that reflects the realities of today’s workforce, where workers are far more likely to change fields and employers throughout their entire career. Texas’ retirement system should ensure that teachers are able to keep the retirement benefits they have earned.
Prioritize Financial Education
Teachers should have the educational information they need to make informed decisions about their financial future.
Most Americans have limited financial education and are not actively engaged in understanding and planning for retirement. Teachers are no different in this regard. Whether or not they have choices and decisions to make about their retirement plans, they need to be well informed about how the system is structured and their personal benefit accumulation. The need for this information is even more crucial when teachers are presented with choices that they need to be able to critically analyze and make confident decisions about their retirement benefits.
Teachers need comprehensive but understandable information provided at the beginning of their career when key decisions are made, and then regularly thereafter. The information and training should be provided from objective and trustworthy sources and be easily accessible. Providing the financial information teachers need is critical to ensuring that teachers can make informed decisions and understand their retirement wealth.
How TRS Fails to Meet these Principles.
Principle 1: Choice, Guarantees, and Agency
K-12 educators today do not have a choice of primary retirement benefits. Everyone is enrolled in the TRS defined benefit pension. This definitely works for those teachers that work a full career. Retirement benefits should be designed so that every educator has the potential to accumulate future retirement income, even if they are only offering valuable service for 5, 10, or 15 years.
There are optional, supplemental plans known as 403b programs that educators can contribute their own money into, but these supplemental benefits are not designed to provide an alternative primary retirement benefit.
These 403b programs are marketed to teachers by third parties that are allowed to — and do — charge excessive fees, preying on the financial vulnerabilities of teachers who do not feel TRS provides a sufficient benefit.
Higher education employees in Texas have access to an Optional Retirement Program. While the specific benefits offered through that program may not be ideal for all K-12 educators, the fact that some education employees in Texas have a choice of primary retirement benefits shows that offering choices is feasible.
TRS is a traditional pension system, meaning it provides guaranteed income to retired educators who meet eligibility requirements—which, as previously discussed, is a minority of all educators. Guarantees are not very strong, though, if they are not inflation-adjusted. And since 2001, there have only been two cost-of-living adjustments for retirees. The ad hoc, and infrequent nature of these COLAs undermines the nature of guaranteed income because it gets steadily eroded by inflation.
Guarantees are also not very strong if they are not consistently financially sound. The steady growth of TRS’s $51 billion funding shortfall has meant (a) state resources that could otherwise provide a COLA are being used to pay down pension debt; (b) contribution rates from educators have been increased multiple times since the Great Recession, but without any increase in benefits; and (c) the value of benefits for new teachers joining TRS has been repeatedly reduced. The unfunded liabilities of TRS are not just a long-term threat, they are having very real effects on the profession and educators today.
Principle 2: Portability is Key
TRS pension benefits do not transfer to other states or private schools. Any educator who moves away from Texas or leaves public school teaching also leaves behind their retirement plan.
45% of new teachers in Texas are projected to leave before they reach the five years necessary to qualify for any future benefit (vesting). These educators will only get their own money back with nominal interest; none of the employer contributions on their behalf are portable.
65% of new Texas teachers are projected to leave before 20 years of service. These individuals who leave with 10, 15, or 20 years of teaching service will have qualified for a benefit but it will be trivial and by the time they qualify to receive a pension (around age 62 or 65) the value will have been eroded by inflation. These educators may also find it is best to take their own contributions out of the system, without getting any of the employer contributions on their behalf.
Principle 3: Prioritize Financial Education
For the most part, Texas teachers are left to learn about TRS and their retirement benefits on their own, and new teachers rely on veteran educators and family members to help them understand the system. TRS offers a dense handbook and online resources, but for the most part education consists of resources offered to teachers approaching retirement. The vast majority of Texas teachers do not understand how their retirement benefits work.
Many educators in Texas learn more about TRS benefits in their first few years through sessions offered by 403b plan providers than they do from TRS itself. The consistent message that Texas teachers hear from supplemental 403b plan providers is that TRS is not going to provide sufficient retirement savings.
Additionally, teachers are not warned about the impact high fees from 403b plans have on their retirement. Very few teachers understand that a "modest” 2% fee could cost them thousands of dollars in retirement money in the future.