How long must new teachers remain in the same retirement system until their benefits are finally worth more than their contributions? Looking for the timing of this moment—known as the “crossover” point—is the central question in a new report from the Thomas B. Fordham Institute, (No) Money in the Bank: Which Retirement Systems Penalize New Teachers?
The study examines retirement systems in the largest public school district in each state plus the District of Columbia, and the findings don’t bode well for new teachers. Among the 51 districts studied,
- The median crossover point is 25 years. That means teachers in more than half of these districts must wait at least two-and-a-half decades before their retirement benefit is worth more than what they’ve put in themselves.
- In 35 districts, nearly three in four teachers will leave the profession before they reach the crossover point; for these teachers, their future retirement benefit will be worth less than the contributions they made to the retirement system while they were teaching.
- In Boston, Chicago, and Anoka-Hennepin (MN), teachers’ retirement benefits will never be worth more than their total contributions, no matter how long they stay in the classroom.
To ensure a fairer system for all teachers, the authors recommend that policymakers add a defined contribution retirement plan option, make portable plans the default option, and prioritize salary over deferred compensation.