The state should ensure that pension systems are portable, flexible and fair to all teachers.
Georgia only offers a defined benefit pension plan to its teachers as their mandatory pension plan. This plan is not fully portable, does not vest until year 10, and does not provide any employer contribution for teachers who choose to withdraw their account balances when leaving the system. It also limits flexibility by restricting the ability to purchase years of service.
Some teachers in Georgia also participate in Social Security, so they must contribute to the state's defined benefit plan in addition to Social Security. Although retirement savings in addition to Social Security are good and necessary for most individuals, the state's policy results in mandated contributions to two inflexible plans, rather than permitting teachers options for their state-provided savings plans.
Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Non-vested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Georgia's vesting at 10 years of service is very late and limits the options of teachers who leave the system prior to this point. According to a recent report, about 35 percent of employees in Georgia's teacher-covered pension plan vest, meaning that 65 percent do not become eligible for a pension and, therefore, can only collect their refundable contributions.
Many teachers will leave the system before they reach 10 years of service. Teachers in Georgia who choose to withdraw their contributions upon leaving only receive their own contributions plus interest. This means that those who withdraw their funds accrue no benefits beyond what they might have earned had they simply put their contributions in basic savings accounts. Therefore, teachers leaving the pension system would have saved only 6.00 percent of their salary plus interest (see pension sustainability goal), which is significantly below the level conventionally recommended by retirement advisers for individuals not also contributing to Social Security. While Georgia's relatively low mandatory contribution rate allows for flexibility in teachers' retirement savings, it also means that the states need to educate teachers who work in districts not participating in Social Security on what happens if they leave the system and encourage savings in other portable supplemental plans. Further, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution.
Georgia limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Georgia's plan allows teachers to purchase time for previous teaching experience, up to 10 years. While better than not allowing any purchase at all, this provision disadvantages teachers who move to Georgia with more teaching experience. In addition, this purchase is not allowed until teachers have six years of service in Georgia at which point they may only buy one year of service credit and then may purchase an additional year for each additional year served in Georgia. This makes the purchase cost much more expensive than if calculated earlier in a teacher's career.
The state's plan does not allow for the purchase of approved leaves of absence, which is a tremendous disadvantage, especially to any teacher who needs to take a leave for personal reasons such as maternity or paternity care. Teachers with at least 25 years of service, however, may purchase up to three years of additional service at the time of retirement.
Georgia Teachers' Retirement System, Comprehensive Annual Financial Report for fiscal year ended June 30, 2015. Aldeman, C. and Rotherham, A. (2014). Friends without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten Their Retirement Security, Bellwether Education Partners.
Offer teachers a pension plan that is fully portable, flexible and fair.
Georgia should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. However, as the sole option, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because some teachers in Georgia participate in Social Security, they are required to contribute to two defined benefit-style plans. Those teachers who do not participate in Social Security have no fully portable retirement benefits that would move with them in the event they leave the system.
Increase the portability of its defined benefit plan.
If Georgia maintains its defined benefit plan, it should allow teachers that leave the system to withdraw employer contributions. The state should also allow teachers to purchase their full amount of previous teaching experience upon the first day of employment, allow the purchase of parental leaves, and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force.
Offer a fully portable supplemental retirement savings plan.
If Georgia maintains its defined benefit plan, the state should at least offer teachers the option of a fully portable supplemental defined contribution savings plan, with employers matching a percentage of teachers' contributions.
Georgia did not respond to repeated request to review this analysis.
Anachronistic features of teacher pension plans disadvantage teachers early in their careers. Nearly all states continue to provide teachers with a defined benefit pension system, an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers. To achieve the maximum benefits from such a plan, a teacher must begin and end his or her career in the same pension system. Teachers who leave before vesting—which takes as long as 10 years in some states—are generally entitled to nothing more than their own contributions plus some interest. This approach may well serve as a retention strategy for some, but on a larger scale it fails to reflect the realities of the current workforce. At present, the United States is experiencing growth in school-age populations in some states, while other states are experiencing a decline. The nation's workforce needs to be able to respond to these changes. The current workforce is increasingly mobile, with most entering the workforce expecting to change jobs many times. All workers, including teachers, may move to jobs in other states with no intention of changing careers. To younger teachers in particular, a defined benefit plan may seem like a meaningless part of the compensation package and thus fail to attract young talent to the profession. A pension plan that cannot move across state lines and that requires a long-term commitment may not seem like much of a benefit at all.
There are alternatives. Defined contribution plans are fair to all teachers at all points in their careers. These plans are more equitable because each teacher's benefits are funded by his or her own contributions plus contributions from the employer specifically on the individual employee's behalf. This is fundamentally more equitable than defined benefit plans, which are generally structured to require new teachers to fund the benefits of retirees. Moreover, defined contribution plans are inherently portable and give employees flexibility and control over their retirement savings. However, it must be noted that defined benefit plans can also be portable and fair, so long as they are structured as cash balance plans or plans that permit the withdrawal of employer contributions.