New study finds defined benefit plans give educational employers an effective recruitment tool and ensure retirement security for teachers.
Seems like a logical conclusion. So why are critics of defined benefit (DB) plans saying DB plans are ineffective and that they shortchange teachers?
The National Institute on Retirement Security recently released a detailed study conducted by Dr. Christian Weller, Professor of Public Policy at the University of Massachusetts Boston. The report, “Win-Win: Pensions Efficiently Serve American Schools and Teachers,” presents facts that show how DB pension plans are good public policy, in addition to enjoying overwhelming public support.
A quick summary of Dr. Weller’s findings:
- DB pensions provide important incentives for effective teachers to stay in the teaching profession.
- DB pensions ensure teachers save for retirement – avoiding the “do-it-yourself” investment strategy that does not work for everyone.
- DB pensions reduce income inequality for low- and middle-income earners due to the current structure of the tax system.
- DB pensions provide more retirement income and are less risky when compared to defined contribution plans.
The report concludes that DB plans are a key component of teacher compensation and it’s good public policy to offer them to educators.
Read the full report.
See PERA on the Issues, Independent Analysis: PERA Wins Gold
Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined contributionA type of individual retirement plan in which an employee saves a portion of each paycheck (along with a potential employer match) and invests that money. The employee’s retirement benefit is based on their account balance at retirement. A 401(k) is a type of defined contribution plan.
