State Pension Plans
Teachers and other public-sector employees typically have access to a retirement system or pension called a defined benefit or DB plan. Like its name suggests, the employer in a DB plan defines the benefit or promised amount of money the employee will receive in retirement. In order to estimate the amount of money they need to set aside today in order to meet their obligations in the future, states must make a number of assumptions around how well their investments will perform, how much employees will earn in the future, how long employees will work, and how long pension beneficiaries will live into retirement. If any of those projections are off—if investment returns do not match historical rates, for example—states will owe much more than they’ve projected.
In 1985, four-fifths of private-sector workers also had access to DB plans like these. But, by 2011, only one in five did. In contrast, teachers and other public sector workers are still overwhelmingly offered defined benefit pension plans and more than four out of five teachers are enrolled in a DB plan today.