According to this brief from Third Way, our current teacher pension system is a “rip-off”; furthermore, “no private plan would be allowed to behave this way.” Under federal guidelines set by the Employee Retirement Income Security Act, private-sector employees are partially vested in their pensions in three years and fully vested in six years. By contrast, states have the authority to determine their own teacher vesting periods—which can last up to twenty years. Nineteen states “require their teachers to spend at least 10 years in the classroom before they can even vest at the minimum level of their retirement.” With 40 to 50 percent of teachers leaving the profession within five years, most teachers never reap their employers’ contributions, leaving states to eagerly inhale what’s left behind. Another big problem: teachers in twelve states (over 40 percent of the teaching force) work outside of the Social Security system, and no feasible guidelines exist for transferring one pension to another or a pension to Social Security coverage. To reboot the public pension system, the authors propose a mobile “cash-balance” system that would “allow cash flow to be uninterrupted for current and future retirees.”
SOURCE: Tamara Hiler and Lanae Herickson Hatalsky, “Taking Immediate Steps to Provide Teachers with a Secure Retirement,” Social Policy & Politics Program (Washington, DC: Third Way, July 2014).