Pensioners

One Reply to “Pensioners”

1. Why is no one looking to the Federal model for pension reform?

   I worked the first 15 years of my career in the Federal government then 5 years ago underwent a mid-life career change and now teach HS in Texas. So I’m familiar with both the Federal civilian retirement program and what teachers get in Texas.

   The Federal program is actually a 3-part or 3-legged program

   Part 1 is social security. I was appalled to discover that teachers in Texas do not pay into social security and those of us who join mid-career will end up being penalized and lose part of the social security benefits that we have earned in previous careers. I fail to understand why all teacher pension programs don’t also participate in social security. Especially given the more mobile workforce. Teachers move from career to career and from state to state much more frequently than in the past. By including all teachers in social security, states and localities would be shifting a big portion of their pension liability onto social security

   Part 2 is a traditional pension. Federal employees also earn a traditional pension called FERS that pays 1% of their final 3-years average salary x number of years worked. So the typical employee working 35-40 years will be retiring at 35-40% of their final salary. Definitely not as generous as many teaching pensions but then with social security added it comes out about the same for most teachers I suspect. And those who do multiple careers throughout their lives will come out ahead.

   Part 3 is a Federally run 403(b) program called the Thrift Savings Plan or TSP. It is basically a menu of super low cost index funds with cost ratios that are about 10x lower than even Vanguard. The federal government matches the first 3% and then matches 50% up to 5%. This is unbelievably better than the horrific 403(b) options that most districts around the country offer with their “advisor” administered plans and menus of expensive load funds with high expense ratios, or worse yet, variable annuities.

   Basically Federal employees get social security, a modest traditional pension, and the best 403(b) plan that exists in the country. Federal employees are counseled to think of it as a 3-legged stool in which they should count on each part for at least a 3rd of their retirement. I think that would work out better for most fiscally strapped states and most teachers who don’t teach the traditional 45 years in a single district will come out ahead as well. The biggest problem would be the transition when the state has to pay both the traditional pension while teachers transition to a new system.