Graphs: Teacher Pension Costs Are Higher Than Teacher Pension Benefits
In my 401(k) plan, my retirement savings is directly equal to the amount I contribute, the amount my employer contributes, and the amount those contributions grow over time. That’s not how teacher retirement plans work. 90 percent of teachers earn retirement savings based on a formula relying on their age, salary, and years of experience.
The contributions made into those plans are related but not directly tied to what teachers actually receive in benefits. This discrepancy is due to debt. My 401(k) plan has no debt, and indeed my employer contributes what they promised each year, nothing more and nothing less.
Pension plans, on the other hand, can and do accrue large debts. They promise a certain level of future benefits but often fail to save enough in the present. As debts rise, teachers, school districts, and states must make higher contributions than they otherwise would. They must pay debt costs in addition to the cost of providing benefits.