Massachusetts

How Do Teacher Pensions Work in Massachusetts?

In Massachusetts, teachers are a part of the Massachusetts Teachers' Retirement System. The system was established in 1936 and is the largest public retirment system in the state.

The basic structure of Massachusetts’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 Massachusetts, have adopted multiple benefit tiers for teachers depending on when they were hired. Massachusetts’s benefit tiers can be found here.

How Are Teacher Pensions Calculated in Massachusetts?

Pension wealth is derived from a formula. The figure below illustrates how a teacher pension is calculated in Massachusetts. It is important to note, however, that the state assesses an educator’s final salary based on their average salary from the past 60 consecutive months. 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 62.5 percent of their final salary. 

Who Qualifies for a Teacher Pension in Massachusetts?

Like most states, teachers need to serve a number of years before qualifying for a pension. Massachusetts 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 Massachusetts, they can retire with their full benefits when they reach 60 years of age and have accrued at least 10 years of service.

Additionally, Massachusetts allows early retirement at any age once they have accrued at least 20 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 Massachusetts'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 9.78 percent of their salary to the pension fund, while the state contributed 18.17 percent. In total, 27.95 percent of teacher salary was spent on Massachusetts's teacher pension fund. However, not all of that investment goes toward benefits. While the full 9.78 percent of salary contirbuted by individual teachers is for benefits, the state contributes only 3.41 percent. The remaining 14.76 percent state contribution is to pay down the pension fund's debt. 

Finally, in Massachusetts, as with most states, teacher pensions are not portable. This means that if a teacher leaves the MTRS 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, Massachusett’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 Massachuetts should think carefully about their career plans and how they interact with the state's retirement plan.