Course Purpose and Goals

In this module, you will learn the two basic types of retirement plans and take a deeper look at how teacher retirement plans work, how much they cost, and why many worry about the growing pension debt.

Introduction

Individuals need to save during their working years to afford a comfortable retirement. For public school teachers, 90 percent of teachers are enrolled in a type of retirement plan called a defined benefit pension. Those plans promise a benefit to workers based on a formula tied to the employee’s age, years of service, and salary. As the costs of those plans continue to rise, it’s important to understand the implications of those benefit formulas, and the costs attached to paying for them—and what that means for education funding now and in the future.

Let's get started

For this module, Chad Aldeman, Policy Director with the Edunomics Lab at Georgetown University will explain the basics of different types of retirement plans. He will then take a deeper look at the benefit provisions and costs of typical teacher retirement plans.

Start each activity by watching the video, then use what you have learned about pensions to answer the activity questions. After you answer each question in the activity section, click "Check Your Answers" to see Chad's answer key, and if appropriate, calculations. If you need to show completion of the module, you can email your answers to yourself at the end.
Next Step

Why should you care about teacher pensions?


Next Step

ACTIVITY #1 A Pension Primer


Question #1

For retirement systems, what’s the difference between a “Defined Benefit” (DB) plan and a “Defined Contribution” (DC) plan?


Answer

Defined Benefit is a fixed level of benefit. Defined Contribution is a fixed level of contribution without guaranteed level of benefit.

Question #2

Is a 401K plan a DB or DC?


Answer

DC

Question #3

Is a traditional teacher pension plan a DB or DC?


Answer

DB

Question #4

Is social security a DB or DC?


Answer

DB

Question #5

Why might lawmakers be worried about public employee pensions?


Answer

Current policies cannot be sustained. There isn’t enough money in the pension fund to pay out existing obligations.

Check your thinking Next Step

ACTIVITY #2 Pension Problem


Question #1

Lawmakers assume pension funds will get an annual growth of _____% and financial experts predict pension funds will grow by _____%. (Just provide a guess.)


Answer

Most states assume pension funds will grow 7 – 7.25%. Conservatively, financial experts believe they will grow 5 – 6%.

Question #2

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Note: you can turn your phone sideways to get a calculator that does exponents. Here is equation for FutureValue if needed:

$100,000 is put into an account today that earns 8.5% a year, how much is in the account in 20 years?


Answer

Question #3

What if that same money only earns 4% per year?


Answer

Question #4

An employee has been earning $70,000 a year for nearly all of her career. Then, three years before retirement, she is promoted to a position making $140,000 a year (and keeps this new job for her last 3 years). How will this promotion affect her retirement earnings if she’s on a typical DB plan?


Answer

The pension benefit will increase because it is linked to the salary of her final 3 years.

Question #5

What about if she’s on a DC plan?


Answer

Their pension benefit is not tied to the raise so it is not as impacted as with the DB plan.

Check your thinking Next Step

WRAPPING UP


Briefly describe what you learned in this module and any lingering questions you may have about teacher pensions.

Next Step

Overview

This activity helps participants consider how teacher retirement plans work, learn the difference between defined benefit and defined contribution retirement plans, and examine the benefit rules and cost implications for traditional teacher pension plans.

Welcome

Pension Primer

Q1

For retirement systems, what’s the difference between a “Defined Benefit” (DB) plan and a “Defined Contribution” (DC) plan?
Your answer: {no answer}

Q2

Is a 401K plan a DB or DC?
Your answer: {no answer}

Q3

Is a traditional teacher pension plan a DB or DC?
Your answer: {no answer}

Q4

Is social security a DB or DC?
Your answer: {no answer}

Q5

Why might lawmakers be worried about public employee pensions?
Your answer: {no answer}

Pension Problem

Q1

Lawmakers assume pension funds will get an annual growth of _____% and financial experts predict pension funds will grow by _____%. (Just provide a guess.)
Your answer: {no answer}

Q2

$100,000 is put into an account today that earns 8.5% a year, how much is in the account in 20 years?
Your answer: {no answer}

Q3

What if that same money only earns 4% per year?
Your answer: {no answer}

Q4

An employee has been earning $70,000 a year for nearly all of her career. Then, three years before retirement, she is promoted to a position making $140,000 a year (and keeps this new job for her last 3 years). How will this promotion affect her retirement earnings if she’s on a typical DB plan?
Your answer: {no answer}

Q5

What about if she’s on a DC plan?
Your answer: {no answer}

WRAPPING UP

Briefly describe what you learned in this module and any lingering questions you may have about teacher pensions.
Your comment: {no comment}