Study: California Teachers Better Off With DB Plans Than 401(k)s

Defined-benefit pension plans provide better retirement security than 401(k)s for a vast majority of California teachers, according to a study out of UC Berkeley.

The study found that the effects of DB plans are two-fold: they encourage teachers to stay in the profession despite modest salaries, and they encourage older teachers to securely retire and make room for younger generations in the workforce.

From Berkeley News:

Study findings include:

– For six out of seven teachers, or 86 percent of CalSTRS active members, the defined benefit pension provides a greater, more secure retirement income than a 401(k)­-style plan.

– A typical classroom teacher today can expect to retire from their career at approximately age 61, and 49 percent of teachers will retire with 30 or more years of service.

– Three­-quarters of classroom teaching is performed by teachers who will have been covered by CalSTRS for at least 20 years by the time they retire.

– The defined benefit pension becomes more valuable than a 401(k) at age 51 for vested teachers hired before age 35, and earlier for those hired at older ages.

– Some 86 percent of active teachers in the state will stay in California schools until at least age.

– Forty percent of new hires leave before the five-­year vesting period and do not return to the education system covered by CalSTRS, and many leave the profession altogether. These early leavers account for just 6 percent of teaching positions.

“This study rebuts the myth put forward in several studies that seek to show that teachers will not benefit, or even vest, in a defined benefit retirement plan,” said CalSTRS chief executive officer Jack Ehnes. “Since California educators do not receive Social Security benefits for their CalSTRS­-covered employment, a modest but secure retirement income is essential for their future well-being.”

Read the full report here.

Photo by cybrarian77 via Flickr CC License