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Pension Plans: Three Perspectives

NEA-Retired members applaud the advantages of defined benefit plans, while a current teacher laments his state’s recent loss of the secure plan

Neither economic upheavals, petty politics, nor home-state budget cuts should cause retirees to become anxious about the best ways to protect their pensions. But the experiences of three educators—two retired and one active—prove some retirement plans are better than others.

“I didn’t worry about retirement when I was teaching because I had a defined benefit plan,” says Steve Mockus, a retired science teacher from New Jersey who now resides in Florida. “I knew what to expect.”

That wasn’t the case of some of Mockus’s Florida neighbors who didn’t have traditional group pensions.

“They are 70 years old and working at the grocery store,” he says. “Not having the right pension plan has forced them to come up with other means of income.”

If it’s up to some of our nation’s legislators, future retirees may have cause to worry. Some politicians like New Jersey Gov. Chris Christie and newly elected Kentucky Gov. Matt Bevin favor closing pensions to the next generation of educators by moving to defined contribution (DC) plans where employers contribute a certain amount, but which offer no guarantee or predictable retirement benefit. This has become somewhat of an ideological issue, with practical outcomes often ignored.

Sidney Kardon feels secure with his defined benefit (DB) plan. It’s the politicians he’s worried about. They often make big promises to maintain and fund pensions but don’t deliver, he says.

“Some of our elected officials have failed to live up to their obligations to fund workers’ pensions,” says Kardon, a retired school social worker from Royal Oak, Mich. “Such decisions often lead to bad outcomes for educators covered by the plan over time, and can also be used as an excuse to shut down the plan for the next generation.”

Nationwide, NEA is a strong advocate for the protection of DB plans. Such plans provide a defined, predictable, guaranteed benefit, usually based on factors such as age, earnings, and years of service. Defined benefit pensions provide a secure retirement for participants and their spouses, but they also typically offer other protections like disability insurance.

With the benefit of stronger investment returns, lower fees and longevity risk pooling, DB plans are able to provide these benefits at about half of the cost that would be required in a DC plan.

Teacher Jake Todd of Alaska doesn’t look forward to retirement. While defined benefit plans are still in place for Alaska teachers who had them as of 2006, new hires like Todd were offered a retirement plan that carries high investment risks and no lifetime guarantee.

“I didn’t become a teacher to get rich, but I would like to know that I’ll be secure when I retire,” says Todd, who dreams of getting married, buying a house, and some day retiring in Anchorage.

Pension benefits were designed to be stable while markets fluctuate and politicians flip-flop. A rational, functioning retirement system should not create a financial crisis for retirees because they retired in 2009 during an economic recession instead of 1999 when the stock market was flush. The testimonials that follow attest to a retirement crisis that may affect all pensioners, present and future.

Unsure Prospects in Alaska

Jake Todd is 33 years old and has done the math on the retiree income he’s likely to receive if he continues to work for the Anchorage School District (ASD) in Alaska. He’s not optimistic.

Todd, a social studies teacher at Robert Service High School, was hired by ASD in 2007—one year after Alaska discontinued its defined benefit (DB) pension plan. Under the previous pension system, Todd would have received a set monthly amount upon retirement, guaranteed for life.

While DB plans are still in place for Alaska teachers who had one as of 2006, new hires like Todd were offered a 403(b) retirement plan (categorized as a DC plan), which is similar to 401(k) and 457 plans. It delivers only about half the level of benefits as a DB pension per dollar invested.

“It’s more of a savings account,” Todd says. “Once the retirement funds run out for recipients, it’s over. You’re out in the cold.”

Making matters worse for Todd and his contemporaries, Alaska opted-out of Social Security benefits in the 1960s. Without Social Security and a guaranteed-for-life pension, Todd joined the Alaska National Guard to qualify for the military’s deferred compensation pension plan and benefits package.

“People don’t think about retirement until it’s too late,” he says. “As a teacher in Alaska, I can’t afford to do that.”

Alaska’s unique geography and climate, coupled with a DC system and no Social Security, “creates a tremendously difficult situation when trying to attract and retain a high quality public sector workforce,” says Ron Fuhrer, NEA-Alaska president.

“Returning to a defined benefit or pension system would be the first step toward reversing historically high levels of turnover in Alaska, and creating a stable, high quality learning environment for our students,” Fuhrer adds. “NEA-Alaska members have led the charge to make this change and will continue to do so.”

Under the current plan, teachers in Alaska pack up and go because there is no substantial retirement package that ties them to the state, says Todd.

“We lose their institutional knowledge and plus, who will want to teach here in the future,” he asks. “My generation is paying more for college, more for houses, more for health insurance than our parents and we’re getting fewer benefits than our parents.”

Todd comes from a close-knit family. His grandfather lived until his late 90s and grandmother until age 100.

“I saw my grandparents grow old, as I might,” he says. “I love my job and living in Alaska, but Alaska does not offer the type of retirement security I feel comfortable with.”

The Politics of Pensions

Access to defined benefit plans provides sufficient income so workers and their families can enjoy roughly the same standard of living as they did before retirement. Reverberations from the nation’s financial crisis in 2009 were felt by state pension plans across the nation. However, if states had funded pensions properly all along, these systems would be operating more efficiently now.

“Some of our elected officials have failed to live up to their obligations to fund workers’ pensions,” says Sidney Kardon, the retired social worker from Michigan. “Such decisions often lead to bad outcomes for educators covered by the plan over time, and can be used as an excuse to shut pension plans for future generations who are living much longer than ever before,” Kardon says.

The uncertainty of a person’s lifespan makes “you’re-on-your-own” retirement planning very difficult since one person may live to be age 100 while another lives for only one year after retiring. Analysts know to a great extent what will happen on average, but individually lifespans vary. This makes it much easier to properly fund retirement needs when longevity is pooled together for the whole group, as with traditional DB plans. 

“I knew what my retirement would look like, and for 30 years I never thought about looking for another job,” says Kardon, a former board member of the Michigan Education Association and NEA. “Under a DC plan, I would have worried because the individual assumes a lot of risks.”

Unlike DC plans, a defined benefit pension income also helps prevent older Americans from turning to public assistance. With a DB plan, they achieve financial security and reduce the risk of poverty. Most of these benefits are paid from the plans’ investment returns, with the vast majority invested right into our communities. 

“If current teachers look at defined benefit plans as part of their salary, they are more able to focus on their students and not worry about their retirement,” Kardon says. 

Rates of poverty among older households without DB pension income are greater than those with DB pensions. In addition, any turmoil in financial markets can reduce DC retirement savings, heightening concerns that many older citizens will not accumulate sufficient income to meet their retirement needs.

“With DC plans, you are subject to the whims of the marketplace,” says Kardon, a former president of the Royal Oak Education Association. “If there is a stock market crash, you have no guarantee on your savings.”

Well-funded special interests have applied pressure at all levels of our political system to strip future public workers of traditional pensions, especially since the Great Recession. Not surprisingly, many of the groups advocating to remove retirement security from the next generation of educators are the same ones pushing privatization and charter school schemes.

There have been so-called studies (funded by right-wing interest groups) that include “report cards” which give states poor marks if they have a retirement plan that is designed to retain teachers for a full career.

Though many plans’ benefit provisions have been altered since the recent economic crash, these special interest groups are largely failing to convince officials to adopt a risky savings account-based approach that would lead to increased staff turnover.

All pension systems are complex and vary enormously from state to state. While arguments can be made over which systems seem fairer, no argument can be made about the greater stability and lifelong guarantee of a defined benefit plan over a defined contribution plan.

“Let’s not call it a “defined contribution” plan,” Kardon says. “Let’s call it what it is: an employee savings account.”

Secure in the Sunshine State

Lunch and conversation were not the only reasons that New Jersey Retired-Central Florida (NJRE) members met recently at a restaurant in Leesburg, Fla. The 50 members and several spouses also discussed retirement security, health benefits, and pensions.

Despite a sobering conversation about ever-increasing health care costs, uncertain financial markets, and stagnant COLAs (cost of living adjustments), the retirees took solace in knowing that the New Jersey Education Association (NJEA) had been able to institute a defined plan that offered a set monthly amount upon retirement, guaranteed for life.

Mockus, 65, the retired New Jersey science teacher, began his career in 1972, earning $7,680 per year. He drove a forklift truck at night to help make ends meet at home. His annual salary for that job: $9,000.

“I enjoyed teaching too much to quit, but my wife and I had a child at home to support,” he says. “I needed a second job.”

Many teachers working today pay about 6 percent of their salary into a pension fund.

“It might go to 7 percent for them, who knows,” Mockus adds.

Although retirees no longer need to worry about paying into pension plans, Mockus says news about inflation trends and the rising cost of living should concern pensioners.

“We feel under attack,” he says. “We keep hearing about COLA increases being eliminated and that is worrisome for us. That is why we are talking about it.”

Mockus and his wife, Sandy, also a former New Jersey teacher, retired to Leesburg about 10 years ago. In addition to teaching, Mockus worked for NJEA on local contract issues for 12 years, covering 20 school districts. Like many of his fellow NJRE members, Mockus follows current pension policies being voted on and implemented by New Jersey legislators.

“Gov. Christie made a deal with legislators involving public employee pensions and COLA increases, and they are not contributing as agreed,” Mockus says. “Their actions seem to affect current teachers more than retired ones, but what if the pension fund goes bankrupt? That affects us all.”

In 2011, Gov. Christie made a promise to teachers and other public employees: The state would fully fund the state pension fund and, in return, public employees also would contribute more of their own paychecks.

But since Christie took office in 2010, school employees have contributed more than two and a half times as much money as the state. By 2027, because the state keeps kicking its problems down the road, the pension fund could be bankrupt.

“They (legislators) keep changing the rules,” Mockus says. “This is why we can’t sit on the sidelines.”

In 2014, NJEA and other unions sued the state to compel it to pay its fair share—and won. But Christie appealed to the state Supreme Court, and this summer he won that appeal. According to the Court, the state can—and should—fund its employees’ pensions, but the state overreached its authority by requiring prescribed payments.

This doesn’t mean the state Legislature can’t include a full payment in its state budget. A few months ago, it did—but, once again, Christie used his line-item veto to reduce the payment by more than $1.5 billion. Benefits keep getting reduced because politicians have shortchanged the system, which will result in a lower standard of living for the next generation of educators.

“This concerns us,” Mockus says. “We have telephone drives where we call relatives and ask them to be sure and vote for candidates who are friendly towards public service employees. We’re all in this together.”

What Can You Do?

In a few states, employees have a choice between DB and DC plans. Make the smart choice for a secure retirement. In other places, especially where lawmakers have not been responsible, it’s critical to advocate for full funding. Finally, don’t allow elected leaders to sell out the next generation of educators! Check with your NEA state affiliate to learn more and join the fight for retirement security.


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