Retirement Security - Frequently Asked Questions
Information on the Issues
The information below will help you understand, defend, and strengthen the quality and level of retirement benefits for yourself and other public education employees. It has facts about pensions, retiree health care, Social Security, Medicare, and suggests actions you can take to protect your retirement security. See NEA Retirement Security Resources for a list of related publications and Web sites.
NEA members count on a pension when they retire from service, and the pension is generally in the form of a defined benefit (DB) plan. Such a plan provides a lifetime retirement income based on a formula, generally years of service multiplied by the final average compensation multiplied by a percentage.
Like salary and health benefits, a pension is an earned benefit that encourages people to enter and remain in education over the long term, providing stability and experience.
Unfortunately, DB plans are under attack. During the past decade, various groups with financial or political interests have worked to eliminate the DB plans public employees have earned and replace them with defined contribution (DC) plans, which are not guaranteed. These groups include, among others, financial institutions that stand to gain by charging higher fees to individual investors than they can to pension plans, political ideologues who recognize and fear DB plans as the cornerstone of a strong and organized public sector workforce, and groups who erroneously think DB plans are too costly.
State and local public retirement systems are designed and funded to provide benefits so that retirees will have an assured income for life. Unlike a DC plan, which does not guarantee an income for life, defined benefits are paid monthly throughout retirement and often have cost of living adjustments and benefits for survivors. Defined benefit plans are funded through investment returns, employer and employee contributions, and state and/or local government funding. These sources must generate sufficient funding to pay benefits not only to current retirees, but also to future retirees.
The funding of retirement systems can be subject to political pressure. For example, in times of fiscal stress, some legislatures have made decisions that undermine the stability of the retirement system.
What Is NEA Doing?
NEA is at the forefront of protecting retirement security through its own research, advocacy and member education, as well as participation in coalitions such as the National Public Pension Coalition (NPPC) and organizations such as the National Council on Teacher Retirement (NCTR) and the Council of Institutional Investors (CII).
The National Education Association believes that the retirement security of all preK-12 members can be assured only by participation in a state or local retirement system with a guaranteed and adequate defined benefit retirement plan. Such plans must be funded in a manner that assures the long-term stability of the plan. For preK-12 members of retirement systems, defined contribution provisions are appropriate only where they supplement adequate defined benefit provisions. The retirement security of all higher education members is every bit as important, and some higher education faculty members have traditionally had successful, alternative retirement security provisions that meet their needs.
We in NEA believe that:
- Retirement security is an issue that affects all members
- Retirement benefits must be protected and, when possible, enhanced
- Retirement plans should provide inflation-protected benefits for life through cost of living adjustments
- Retirement plans should include provisions for health care benefits of members and covered dependents
- Retirement funds must be managed for the sole benefit of members and beneficiaries
- Boards should govern retirement systems
- The composition of retirement boards should include a majority of plan participants with representation of both active and retired members
- Retirement systems should educate and counsel members to help ensure that they can make informed decisions about their retirement
- Retirement boards should be fully empowered and independent
What Can You Do To Help?
- Understand the importance of having a guaranteed, lifelong, steady stream of income during retirement, and educate yourself about the issues, including the difference between DB and DC plans
- Organize among and with current and former pension trustees whose specialized knowledge and skills are invaluable in recognizing and dealing with threats to pension plans across the nation
- Support placement of Association-endorsed trustees on pension boards
Retiree Health Care
After working hard for decades, education employees can expect to live many more years into their retirement. They can also expect to have increasing health care needs as they age. Unfortunately, health care costs are so high that if retirees had to cover the costs for health insurance out of their pockets, they could easily end up spending their retirement years living below the poverty line-even if they get a decent pension. Health care costs are rising year after year.
Some retirees participate in their former employers' plans. Others are in a health care plan through their retirement system. Still others must try to get insurance on their own. For those in their employer's plan, 2007 premium costs averaged $4,500 for single coverage and $12,000 for family coverage, and projected increases are two to three times the rate of inflation. Additional costs may include items such as deductibles, coinsurance, and copayments.
Even though retirement may be years or decades away for an active employee, changes are taking place now that could threaten future retiree health benefits.
The National Education Association believes that retirees should enjoy comprehensive, fully funded health insurance benefits, including but not limited to medical, prescription drugs, dental, and vision coverage. NEA believes retirees' spouses, domestic partners, and/or dependents should also be covered.
For retirees who are not eligible for Medicare, the cost of these benefits should not be borne by the retirees or their spouses, domestic partners, and/or dependents. For those who are covered by Medicare, a supplemental plan at no cost to the retiree (or others covered under the retiree's policy) should be provided so that Medicare and supplemental benefits together provide comprehensive coverage.
In addition, the Association believes that universal, affordable, comprehensive, and quality health care, including prescription drug coverage, is the right of residents. NEA supports reform measures that achieve that goal while assuring quality, emphasizing preventive health care measures, and being financed by means that assure greater equity in the funding of that health care.
What Is NEA Doing?
NEA knows that retired members' situations vary from state to state. Some retired members receive comprehensive benefits before and after Medicare eligibility, while others are left to fend for themselves once they leave the active-employee ranks. The out-of-pocket costs they face also vary from state to state and, in some cases, from school district to school district within a state.
The Association also realizes that new developments -- Medicare Part B means testing and new accounting standards issued by the Governmental Accounting Standards Board (GASB), for example -- increasingly place our members' retiree health care benefits at risk.
Given this complicated reality, NEA analyzes and reports on new retiree health benefit trends, develops education materials, and trains state and local staff and leaders to be better prepared to defend and enhance retired members' health care benefits. The Association continues to work with state affiliates and, through them, local Associations to identify and address immediate threats to health benefits. At the same time, the NEA lobbies Congress to identify and support legislation that advances our goals, and works tirelessly to defeat legislation that would harm our retired members.
State and local affiliates are working hard to defend members' retiree health care benefits. While some states have suffered cutbacks, others have made important gains, including locking in statewide legislative or constitutional protection for retiree health benefits and establishing health care trust funds tailored to their needs to help pay for future benefits.
What Can You Do To Help?
- Know if you have a retiree health plan and, if you do, understand its features. Does it cover just you, or spouses, domestic partners, and/or dependents as well? How long do you have to work to have access to the plan? Will you have to pay to participate and, if so, how much? Is there any financial support to supplement or match your participation? Does the plan end at Medicare eligibility, or does it continue throughout your retirement?
Talk to your colleagues about the importance of securing retiree health care benefits.
Social Security has served as a vital trust between the U.S. government and its citizens. It has provided economic stability, which should not be breached.
Social Security may provide the financial support for members and their families that can mean the difference between economic security and poverty. Americans earn benefits through jobs covered by Social Security. Enacted in 1935, Social Security provides vital financial support from the U.S. government for families faced with a change in economic circumstances due to:
- Retirement: Social Security is the major source of income for nine out of 10 individuals age 65 and older.
- Disability: Social Security provides monthly benefits to individuals who become permanently disabled at any age. Almost three in 10 of today's 20-year-olds will become disabled before reaching age 67.
- Death of a family wage earner: Some NEA members report that after the death or disability of a parent, their college education would not have been possible without Social Security benefits.
Unlike employees in the U.S. private sector, state and local government employees (including K-12 teachers, higher education faculty, and education support professionals) are not universally covered by Social Security.
- In 35 states, all or nearly all public school employees have Social Security coverage through their school employment. In these situations, Social Security provides benefits in addition to those from the state retirement system.
- In 15 states, some or most public school employees do not have Social Security coverage through their school employment. In those states, the benefits of public retirement systems have been designed with an eye toward providing comparable benefits.
What Is NEA Doing?
The National Education Association advocates for retirement security for all members. NEA seeks to retain, maintain, and improve the nation's successful Social Security system. NEA strongly opposes any attempts to privatize Social Security with risky, costly individual accounts that rob members of hard-earned benefits, including disability and survivor coverage. NEA also strongly opposes efforts to reduce current Social Security benefit formulas for future recipients.
For those members in the 15 states where some or most public school employees do not have Social Security coverage, NEA also works to repeal the Government Pension Offset (GPO) provision, which reduces Social Security spousal or survivor benefits by two-thirds of the individual's public pension. Thus, members who receive a public pension for a job not covered by Social Security will lose much or all of any spousal survivor benefits they would expect to collect based on their spouse's private sector earnings. NEA also works to eliminate the Windfall Elimination Provision (WEP), which reduces the earned Social Security benefits of an individual who also receives a public pension from a job not covered by Social Security. The WEP can result in a shocking loss of earned benefits. For example, this affects those who move into public education from the private sector or move between covered and non-covered state or local jobs.
NEA works to ensure that public employees who are enrolled in and have paid into other retirement security plans are not mandated to participate in Social Security.
We believe all members -- regardless of state of residence -- should support each other when working on federal legislative proposals that affect some or many members with differing needs related to Social Security.
What Can You Do To Help?
- Learn about the retirement and disability benefits available through your pension plan and the Social Security Administration
- Help ensure that Social Security will be there for you by knowing the facts and opposing those who seek to destroy this program
- Find out if you will lose money due to GPO/WEP and if so, consult a financial adviser to make necessary financial arrangements
- Advocate strongly to maintain the security and stability of the Social Security system by opposing high-risk private accounts.
Several hundred thousand NEA members currently receive Medicare benefits and eventually most members will need and use Medicare. Medicare has proven that good government can create a successful health plan for older and disabled Americans.
The Medicare program has become a target for ideologues who ignore its successes and instead want to destroy the traditional Medicare program and replace it with one run by the private health insurance industry.
Traditional Medicare is a highly successful and efficient federal health insurance program that covers part of hospital and medical costs for America's elderly and disabled. It is financed through federal payroll taxes and general revenues, as well as premiums paid by beneficiaries.
People on traditional Medicare receive hospital benefits (Part A) and may sign up for medical coverage (Part B). Prescription drug coverage (Part D) is available through private health insurance companies. Since all costs are not covered by Medicare, beneficiaries may purchase supplemental health insurance policies, commonly called Medigap policies, from private health insurance companies. These Medigap policies cover many medical copayment costs. Some retirees do not need Medigap policies because they are covered under a health plan that supplements Medicare.
Nontraditional Medicare plans, sponsored by private health insurance companies, threaten the long-term viability of the entire Medicare program. These are called Medicare Advantage plans (Part C), and if Medicare participants enroll, they are automatically switched out of Part A and Part B. Medicare Advantage plans provide a high profit to private insurance companies and drain financial resources from traditional Medicare.
What Is NEA Doing?
NEA's federal legislative priorities include:
- Requiring the federal government to negotiate prescription drug prices for the Part D benefit
- Moving the Part D prescription drug program out of the private health insurance sector and into traditional Medicare
- Reducing and eventually eliminating the excessive subsidy payments being made to Medicare Advantage (Part C) plans
- Opposing any means testing (increasing premiums based on income levels) to Medicare benefits.
What Can You Do To Help?
- Help ensure that Medicare will be there for you by knowing the facts and opposing those who seek to destroy traditional Medicare
- Urge members who have post-retirement health benefits through a pension plan, employer plan, or other means to contact Medicare for guidance on enrollment and benefits to best meet their individual needs.
Actions You Can Take To Protect Your Retirement Security
- In coordination with your state and local Associations, let local, state, and federal elected officials know that you're watching the decisions they make affecting your retirement security, and that you vote
- Become active in local and state benefits committees and be a resource and advocate for your colleagues, friends, and neighbors
- Understand that your financial future is at stake
- Coordinate with your state and local Associations to be kept up-to-date on important developments related to retirement benefits, and learn how you can advocate for these crucial benefits
- Join the NEA legislative action center
- Respond to calls to action from NEA and your state affiliate
- Get politically active
- Donate to and raise money for the NEA Fund for Children and Public Education.
See NEA Retirement Security Resources for a list of publications and Web sites with additional information.