A new teacher’s pension is supposed to be a perk. The truth is that for the majority of the nation’s new teachers, what they can anticipate in retirement benefits will be worth less than what they contributed to the system while they were in the classroom, even if they stay for decades.That’s from Fordham Foundation’s new analysis, “(No) Money in the Bank,” which grimly casts a spotlight on Newark Teacher Union's pension system. It's important to note that NTU's fiscal distress closely mirrors NJEA affiliates, who comprise almost all the rest of N.J. school districts. Despite empty promises by glad-handers like prematurely-anointed Governor Phil Murphy and theatrics from NJEA, anyone who can do math must come to the conclusion that N.J.’s teacher delayed compensation system is nothing more than smoke and mirrors. No constitutional amendment, no millionaire’s tax, no surge of economic growth and return on investments, no tax incentive, can salvage a state pension system that has $95 billion in liabilities and another $65 billion in retirees’ health-care obligations. (Remember that our annual state budget is about $35 billion.)
A Newark teacher who leaves after five years of service (or at any point before the vesting point of 10 years) is not eligible to receive pension benefits at all, because she has not vested.. Her pension wealth is zero, and at five years she has contributed $18,893 into the retirement system.
If she leaves the system with at least 10 years of service, she has now vested and is eligible to start receiving pension benefits once she reaches age 65. Say she separates from the system after 15 years—the average experience of a teacher who leaves the profession.7 Her pension wealth is $65,606, but at this point she has contributed a total of $84,310. Not only has she not yet reached the crossover point, but her pension benefit is worth approximately $19,000 less than her cumulative contributions.
After 18 years, a Newark teacher finally reaches the crossover point—meaning her benefits are worth more than her contributions. At that point, she will have contributed a total of $116,767 into the system and can expect lifetime pension wealth accrual worth $117,808. Her net benefit becomes positive, though small ($1,041).
A 25-year career is longer than most teachers’ careers—fewer than one out of four teachers nationwide stays more than 20 years.8 After 25 years, a Newark teacher’s net benefit is a modest $42,423. (Said another way, the red and green lines in Figure 1 remain close together even after the crossover point.)The bottom line, says Fordham analysts, is that teachers who begin teaching in Newark Public Schools at age 25 must wait "18 years to reach the crossover point. Teachers who exit the New Jersey retirement system early are financially disadvantaged compared to teachers who remain teaching under the same system much longer—in this case, at least 18 years."
Labels: NJEA, pensions, Phil Murphy, school funding, SFRA, Steve Sweeney