Many of Colorado’s teachers aren’t getting their money’s worth on retirement savings.
Colorado’s Public Employees’ Retirement Association (PERA), the state’s retirement system, has a blog called the Dime. Awhile back they featured a Colorado public employee named Travis. Travis worked as a teacher in North Carolina for two years and now works as a human capital manager recruiting teachers for a competitive charter school, called STRIVE.
The majority of STRIVE’s teachers are early-career teachers with four to five years of teaching experience. Half of Travis’ recruits are Teach for America teachers or alumni, but others are experienced veteran teachers from other states. A large part of Travis’ job is to convince talented teachers not only of the position and school culture, but also that the role offers competitive wages and benefits. The Dime’s post reassures us that the state provides all its workers with excellent retirement benefits:
“For Travis, knowing that PERA maintains a retirement account of employee and employer contributions for every member, regardless of the length of their employment, gives him peace of mind. He knows that retirement savings will be there years or decades in the future, even as he is focusing now on other financial goals and priorities. Retirement is one less thing for him, and other staff at STRIVE, to worry about.”
More likely, however, teachers and workers like Travis are getting shortchanged. He can roll over his accrued savings from North Carolina’s retirement system into an IRA account once he moved, but it won’t be worth very much. Without meeting the state’s pension service year requirements (North Carolina required 10 years of service during his tenure, only recently reverting to 5 years), Travis’ take home savings amount to only a refund of his original contributions—money he personally put into the system. He does not receive any interest on his contributions because the state only recently changed this policy to give teachers 4 percent. Travis forfeited his employer contribution, a penalty totaling nearly $8,400 or 13.12 percent of his salary over two years. On top of it all, he has no rights to a future pension. When he moved to Colorado, he started back at square one with zero years of service on the clock. His two years in North Carolina won’t count toward a Colorado pension.
Similar penalties apply to Colorado teachers. In Colorado, 64 percent of new teachers will not meet the requirements to qualify for a minimum defined benefit pension.* Through the state's money purchase plan, teachers working for less than five years in Colorado can get a full refund of their original contributions and three percent interest, but they get none of their employer’s 15 percent contribution, nor do they qualify for Social Security benefits. For out-of-state veterans, the PERA plan is an even worse deal. Because pensions are not portable, a veteran Colorado teacher who split his or her career over more than one state can end up with multiple half-baked pensions, losing thousands of hundreds of dollars in benefits. Technically, they can “buy” service year credits from Colorado, but this turns out to be a costly and unprofitable purchase. Plus, because teachers in Colorado do not participate in Social Security, they are particularly dependent on their state retirement benefits.
That said, Colorado allows teachers to opt into additional savings vehicles such as a 401(k) and 457 plan. Unlike the traditional pension plan, these plans are portable and can transfer across state lines without penalty; teachers vest immediately and have rights to their own and their employer matching contribution (which vary depending on their employer) and investment returns. While these savings vehicles are intended as a supplemental program, it provides mobile teachers a benefit not found in the PERA plan.
Neither Travis nor any of the teachers at STRIVE have done anything wrong. They have put in tough hours and service years to the profession. Yet, they are severely penalized for moving or working anything short of a full career in one state. Without adequate savings, they will inevitably need to save more money in the future, retire later, or face a less-secure retirement. Retirement, unfortunately, is something for Colorado’s teachers to worry about.
*Update: The original post did not include the word "new." The 64 percent figure represents Colorado PERA's withdrawal estimates, converted to the percentage of new teachers who will reach the state's five-year vesting period for a defined benefit pension. All teachers are eligible for the state's money purchase plan.