Pension Neutrality

Retaining Effective Teachers Policy

Pension Neutrality

The state should ensure that pension systems are neutral, uniformly increasing pension wealth with each additional year of work.

Best practices

Alaska offers a defined contribution pension plan that is neutral, with pension wealth accumulating in an equal way for all teachers for each year of work. In addition, Illinois, Minnesota and New Jersey offer a defined benefit plan with a formula multiplier that does not change relative to years of service and does not allow unreduced benefits for retirees below age 65. Illinois and New Jersey are further commended for ending their previous practices of allowing teachers to retire well before Social Security age without a reduction in benefits.

Suggested Citation:
National Council on Teacher Quality. (2011). Pension Neutrality national results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/national/Pension-Neutrality-9
Best practice 1

State

Meets goal 3

States

Nearly meets goal 8

States

Meets goal in part 26

States

Meets a small part of goal 1

State

Does not meet goal 12

States

Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).

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