Maryland

How Do Teacher Pensions Work in Maryland?

In Maryland, teachers are a part of the Maryland State Retirement and Pension System, which includes not only teachers but all state employees. The system was formed in 1982 from a number of other retirement funds and is the largest public retirment system in the state.

The basic structure of Maryland’s teacher defined benefit (DB) pension is similar to that of other states. Unlike other retirement funds, a teacher’s contributions and those made on their behalf by the state or school district do not determine the value of the pension at retirement. Although those contributions are invested in the market, and often managed by private equity and hedge funds, a teacher’s pension wealth is not derived from the returns on those investments. Instead, it is determined by a formula based on their years of experience and final salary.

Finally, most states, including Maryland, have adopted multiple benefit tiers for teachers depending on when they were hired. New teachers in Maryland are enrolled in the Reformed Contributory Pension Benefit (RCPB) plan.

How Are Teacher Pensions Calculated in Maryland?

Pension wealth is derived from a formula. The figure below illustrates how a teacher pension is calculated in Maryland. It is important to note, however, that the state assesses an educator’s final salary based on their highest 3 years average salary. For example, a teacher who works for 25 years with a final average salary of $70,000 would be eligible for an annual pension benefit worth 37.5 percent of their final salary. 

Who Qualifies for a Teacher Pension in Maryland?

Like most states, teachers need to serve a number of years before qualifying for a pension. Maryland has a 10 year vesting period. While educators qualify for a pension after 10 years of service, the pension may not be worth all that much. Moreover, educators can’t begin to collect it until they hit the state’s retirement age. The state sets specific windows when teachers can retire with benefits based on age and years of experience. For new teachers starting out in Maryland, they can retire with their full benefits when their age and years of service combine to eaqual 90, or when they reach 65 years of age and have accrued at least 10 years of service.

Additionally, Maryland allows early retirement at age 60 once they have accrued at least 15 years of service. However, teachers taking that option will have their benefits reduced based on their years of experience and how early they are retiring. 

How Much Does Maryland's Teacher Pension Plan Cost?

As they work, teachers and their employers must contribute into the plan. Those contribution rates are set by the state legislature and can change year-to-year. In 2018, teachers contributed 7 percent of their salary to the pension fund, while the state contributed 15.59 percent. In total, 22.59 percent of teacher salary was spent on Maryland's teacher pension fund. However, not all of that investment goes toward benefits. While the full 7 percent of salary contributed by individual teachers is for benefits, the state contributes only 4.38 percent. The remaining 11.21 percent state contribution is to pay down the pension fund's debt. 

Finally, in Maryland, as with most states, teacher pensions are not portable. This means that if a teacher leaves MSRPS system, they can’t take their benefits with them, even if they continue working in the teaching profession. As a result, someone who leaves teaching or who moves across state lines might have two pensions, but the sum of those two pensions is likely to be worth less than if they remained in one system for their entire career. In other words, the lack of benefit portability will hurt the long-term retirement savings of any educator who leaves teaching altogether or who crosses state lines to work in another state. 

As with most state pension funds, Maryland’s teacher retirement system provides the greatest benefits to teachers who stay the longest, while leaving everyone else with inadequate benefits. With that in mind, new and current teachers in Maryland should think carefully about their career plans and how they interact with the state's retirement plan.