Pensions Are Expensive But Not Generous

This week Eduwonk features guest posts from different members of Bellwether’s Policy and Thought Leadership team who lead some of our most impactful work. The post below is by Chad Aldeman.

In our work on teacher pensions, we spend a lot of time explaining one major contradiction: Teacher pension plans today are tremendously expensive, but they’re not that generous for the average teacher.

Nationally, states and districts are contributing about five percent of each teacher’s salary toward actual retirement benefits. For most workers, that would be the equivalent of a five percent match into their 401(k) plan. That’s slightly better than a typical private sector 401(k), but it’s certainly not an outrageously generous contribution.

But teacher pensions have three unique features that distort this reality. One is that 90 percent of teachers are enrolled in defined benefit pension plans where contributions are not strictly tied to benefits. That is, the plans make promises to pay out benefits in the future, but if the plans fail to save enough to pay for those promises, or if the plan’s assumptions about how much they need to save turn out to be flawed, the plan will take on “unfunded liabilities” that function like debt. These debt costs have soared in recent years; in response, teacher pension contribution rates have risen dramatically even as the value of teacher benefits have gone down.

The graph below shows total state and district contributions toward teacher retirement plans, broken down by whether they’re going toward actual retirement benefits or debt costs (these don’t include teacher contributions, which have also risen in recent years). In the average state, employers are contributing about 16 percent of teacher salaries toward pension plans, but less than a third of that (five percent out of the 16) is going toward actual benefits.

The second reason pensions are often perceived as generous is because the five percent going toward benefits is not distributed evenly. Unlike an employer match into a 401(k) plan, where everyone gets the same percentage of their salary matched into their own account, in pension plans the five percent is the average across all different workers. Those who stay in the same plan for a full career will earn benefits far above that amount, while the many teachers who only serve for five or ten or 20 years earn far less than average.

Third, the five percent contribution today represents an average across all employees, regardless of when they started, but states have cut benefits significantly for new workers.

As the graph above helps illustrate, multiple things can be true at once: States are contributing a lot of money toward teacher retirement costs, but teacher retirement plans, on average, are not that generous. Alternative plan designs could be more portable, more equitably distributed, and no less generous.

For more on how well state pensions plans serve the unique needs of their teachers, check out our recent rankings here.

2 Replies to “Pensions Are Expensive But Not Generous”

  1. A few notes regarding Wisconsin.

    In its section on Social Security, the analysis erroneously states “Unfortunately, Wisconsin defers to individual school districts to decide whether or not they will offer Social Security coverage to teachers, which fails to protect teachers.” State law requires all teachers to be covered under the Section 218 agreement. See and

    The analysis defines break even as the teacher receiving the value of their own contributions plus interest and states that only 49% of teachers will break even. In Wisconsin, teachers who separate before retirement have the choice of either retrieving their contributions plus interest or if vested retain funds in the system and apply for the benefit when they reach retirement age. It would be interesting to see how the calculation that only 49% of teachers will break even was derived.

    The analysis says the Wisconsin system does not offer portability. It’s true that the employer contribution is not portable, but the employee contribution is portable as noted above. Wisconsin also allows teachers with service is public schools outside Wisconsin to purchase those years as creditable Wisconsin service in the WRS.

    The analysis describes the Wisconsin employer contribution as 6.8% and notes that a recommended contribution is 10-15% of a worker’s salary. Wisconsin requires an employee contribution that is similar to the employer contribution so the total contribution is in the recommended range. The percentage contributions are not static, but are adjusted annually with five-year smoothing as part of the WRS balancing system to maintain the solvency of the system. The 2018 contribution rates will be 6.7%.

  2. Thanks for reaching out. We use the NEA’s Characteristics of Large Public Education Pension Plans annual report to inform our Social Security grade. In it, the NEA details whether no teachers are covered, most teachers are covered, or all teachers are covered. The most recent report (here: has Wisconsin’s plan (WRS) at “most.” It looks like Education Support Professionals in Milwaukee fall under the city plan instead, which could put them out of coverage. Additionally, the state says (on page 7 here: that some very long-term veterans still might be left without coverage. Upon further review, we can give Wisconsin full points in our ratings on this category.

    The employee’s own contributions plus interest are portable, but that’s true of virtually any retirement plan. It would be highly problematic for Wisconsin (or any state for that matter) to withhold an employee’s own contributions. We believe teachers deserve better than that. The data used to inform our break even points are based on each state’s own assumptions in their Comprehensive Annual Financial Reports for 25-year-old female teachers who begin their teaching experience after August 1, 2016. For more information on the methodology behind the break-even point, see here:, or to learn more about Wisconsin in particular, see here:

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