Retirement insights from a Colorado PERA perspective

Issues & Perspectives

Why a teacher’s defined benefit retirement plan outshines a 401(k)

teacher defined benefit plan

The vast majority of Colorado teachers will have a more
stable, secure retirement because of Colorado PERA’s defined benefit style
retirement plan, compared to a 401(k)-type option. That’s according to a new
jointly released by the National Institute on Retirement Security
and the UC Berkeley Labor Center.

Critics of public pensions often argue that high attrition
rates among new teachers mean that 401(k)-type retirement plans make more
financial sense than established defined benefit (DB) plans for all educators.
These contentions usually include claims that choosing, or being forced into,
401(k) plans wouldn’t harm teachers’ retirement security in the long run. But
new research suggests that these conclusions are based on narrow interpretations
of employment data and that they could hardly be further from the truth.

The study lays out compelling evidence that migrating
teachers away from existing pension plans like Colorado PERA’s and into 401(k)
savings options “would sharply reduce the retirement income security of
teachers who account for a large majority of educational labor.” The report
adds that such moves hamper teacher recruitment and retention, resulting in
lower educator quality.

The study examined six states—Colorado, Connecticut,
Georgia, Kentucky, Missouri, and Texas—chosen because they represent a
geographic and demographic cross-section of the United States. Researchers found
that 65 percent of all teachers will have worked for at least 20 years before
they leave their careers, and that 77 percent of teachers’ retirement benefits
will surpass what they could receive under an idealized 401(k) plan—meaning, a plan with low fees and professional

Skeptics tend to lean heavily on high turnover rates among young teachers when making their anti-pension arguments. While it’s true that a higher proportion of younger teachers leave for other professions during their first five years, once they’ve cleared that threshold, attrition drops sharply and remains low until retirement age. In fact, the “typical” teachers studied will serve 25 years in the same state and retire around age 58; in Colorado, the median age teachers retire is 57, after a median total of 17 years of service, and 48 percent of all Colorado teachers will stay in the profession until retirement age. See this graphic.

For those who have committed to teaching as a career, the
debate between a DB plan and a 401(k) is no contest: According to the authors, 81
percent of Colorado’s teachers are economically better off choosing the PERA DB
plan versus an idealized 401(k) plan with a 0.25 percent annual fee (compared
to a 77 percent average for all six states in the study). Not only that, any
teachers who start working at age 25 and serve for 30 years would have to
contribute 100 percent more every pay period into their 401(k) to earn the same
benefit as they would get from their DB plan contributions; in effect, they’d
have to double what comes out of each check—while tracking and adjusting their
own investments—just to barely equal their no-maintenance DB option.

Further, the PERA DB plan account is portable and can be left for a future benefit or rolled over to another retirement plan. Members always receive the value of their contributions (plus interest and if eligible a matching amount) when withdrawing an account – something that promoters of 401(k)-type plans often mischaracterize or fail to mention. Evidence of the value of PERA’s DB plan was presented in 2015 when an independent evaluation found PERA’s DB retirement plan to be more efficient and effective than other types of retirement plans, including 401(k)s.

See Pensions are Better infographic.

Defined benefitA mandatory retirement savings plan in which a participant’s future benefits are known or can be calculated, but contributions are subject to adjustments.


  1. Barry Thorpe says:

    Yes! However the key to this is the term “defined”.
    Colorado’s breach of this concept has been to take liberty to change the definition at will, for dubious reasons, repeatedly over the course of 9-10 years.
    The “defined” benefit is meaningless in Colorado.
    Definition 1, under which I took the option to retire was: 75% of your HAS( highest annual salary) for your last 3 years. Also contracted was a defined “annual benefit increase of 3.5% “ to adjust to inflation. The exact language in my retirement papers is “you will receive an annual benefit increase of 3.5%” ….. The state has reneged on that contract, and now owes me over $40,000 in unpaid contractual benefits. Changes need to be made periodically to any defined benefit plan. BUT NEVER RETROACTIVELY, to apply to those who fully vested in good faith., Colorado will not soon escape that black mark on its retirement scam, consider carefully, young teachers before signing on here.

  2. Marge Morgenstern says:

    I taught 32 years(31 in PERA)and my retirement is the greatest investment in my life!…I started with nothing, both in retirement savings and investments as a 21 year old and have saved over my 81 years to believe that I’m without financial worry for the rest of my life! I retired at 58 and have been for 24 years! Thank you ? PERA and our defined benefit plan!

  3. Brad Roeder says:

    I personally don,t think it is right also to not give us a cost of living increase but I think if this will make it so that I can have my pension until I die then don,t give me a cost of living raise for few years to keep the pension fund solid..

  4. Rick Schur says:

    Colorado’s defined benefit plan also allows one to contribute to an additional 401k plan; without a defined benefited plan an additional 401k plan would not be available; an IRA plan does not allow one to contribute as much money as a 401 k plan. Also, Colorado’s DB plan keeps teachers in their chosen professions longer than a 401k equivalent plan which makes more veteran teachers and better educated students.

  5. Jesse Johnston says:

    Saying that those that use a 401k for retirement requires 100% more contribution than Pera is confusing because it implies that it doesn’t take into account social security. On Pera, no social security income. With a 401k and no DB plan, one contributes, as does the employer, to SSI retirement benefits. So please clear confusion, is 100% more necessary when social security is factored in?

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