Pension Flexibility: West Virginia

Analysis of West Virginia's policies

West Virginia 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 five 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. 

Teachers in West Virginia 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. Nonvested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. West Virginia's vesting at five years of service limits the options of teachers who leave the system prior to this point.

Teachers in West Virginia who choose to withdraw their employee accounts upon leaving receive only their own employee 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. 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.

West Virginia 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. West Virginia's plan allows teachers to purchase time for previous teaching experience, up to 10 years or equal to 50 percent of their West Virginia service, whichever is less. 

While better than not allowing any purchase at all, this provision is less than most state's and disadvantages teachers who move to West Virginia with more teaching experience. In addition, the purchased out-of-state service may not be used to establish retirement eligibility, which is a severe disadvantage to those who choose to purchase service. The state's plan does not allow for the purchase of maternity or paternity leaves, which is a severe disadvantage to any teacher who needs to take leave for parental care or for other personal reasons.

Citation

West Virginia Teachers' Retirement System http://www.wvretirement.com/TRS.html West Virginia Teachers' Retirement System Brochure http://www.wvretirement.com/forms/TRS-B2011.pdf

Recommendations for West Virginia

Offer teachers a pension plan that is fully portable, flexible and fair.
West Virginia 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 teachers in West Virginia participate in Social Security, they are required to contribute to two defined benefit-style plans.

Increase the portability of its defined benefit plan.
If West Virginia maintains its defined benefit plan, it should allow all teachers that leave the system to withdraw employer contributions. The state should also allow teachers to purchase their full amount of previous teaching experience, at least one year per approved leave of absence, 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 West Virginia 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.

State response to our analysis

West Virginia was helpful in providing NCTQ with facts that enhanced this analysis.

The state noted that, in addition, it has a defined contribution (DC) plan for those teachers and educational employees who were hired between July 1, 1991, and June 30, 2005, and those members of the defined benefit plan who elected to join the DC plan.  Currently, the DC plan has approximately 5,000 members.  In 2008, 78.3 percent of actively contributing DC members (15,152) individually and voluntarily elected to transfer out of the DC plan to the Teachers defined benefit plan. 

Last word

NCTQ believes that West Virginia's experience with its defined contribution plan presents a cautionary tale for other states—something that has been documented in past editions of the Yearbook.  While the majority of West Virginia participants did choose to switch back to the defined benefit system—without having to pay the actuarial cost of doing so—over 20 percent did remain. The fact that over 20 percent remained in the defined contribution system, even when offered a generous buy-in opportunity, shows that a defined contribution system is valued by many teachers and should be offered as a choice to new teachers in West Virginia.