Teachers in Missouri are automatically enrolled in the Public School Retirement System of Missouri (PSRS). This defined benefit plan offers lifetime pension payments to teachers. Teachers can withdraw their contributions after a vesting period, which usually takes five years. However, they cannot take their employer’s contribution with them.
Pension systems are complicated and have never been easy to understand. But, the good news is that there are some things to keep in mind.
Defined benefit plan
When you become a teacher in Missouri, you automatically enroll in the Public School Retirement System of Missouri. This plan requires teachers to contribute a portion of their salary into a fund that will later provide them with a lifetime pension. This is a great incentive to stay in the classroom, and it can help you prepare for your future financial needs.
Most teachers also gain health insurance benefits. However, this benefit is negotiated on a local level, so the exact coverage varies by district. Teachers can find out more about the specific health insurance benefits they will receive by contacting their local school districts.
It is easy to compare salaries on a county-by-county basis and to look at the health insurance benefits offered by one district compared to another. But it is harder to understand the value of a pension plan on a state-by-state basis. This is because states frequently modify or reduce benefits during periods of fiscal stress.
Matching contributions
Teachers in Missouri pay 14.5 percent of their salaries into a defined benefit pension, which is matched by the state. The average pension for a retired teacher is around $2,750. But this amount falls short of meeting most retirees’ financial needs.
Teachers must work and pay into the retirement plan for a number of years, known as the vesting period, before they can collect a full pension. But they can withdraw their own contributions, usually with interest, if they leave early. This incentive could be a big drawback for the long-term stability of a pension system.
Most public pension plans offer cost-of-living adjustments, or COLAs, for their retirees. These increases can be small or large and are designed to keep pace with inflation. During times of fiscal stress, these increases have been reduced or eliminated.
Eight out of ten teachers in six states will accrue enough service to earn benefits from the lowest-tier pension that are higher than those of an idealized 401(k). Moreover, COLAs are compounding, meaning that the base pension is increased each year, and then any future changes to the benefit are added on top.
Health insurance
Many states have eliminated traditional pension plans or are replacing them with more flexible alternatives. For example, some are converting defined-benefit pensions to hybrid plans that combine elements of a traditional plan with a defined-contribution retirement savings account, which teachers can withdraw if they leave their job. While these plans can help new teachers save money, they are less portable than a traditional pension.
In addition, many of these hybrid plans lack a feature that allows teachers to transfer their pension into another state’s system. This can significantly hurt the long-term retirement security of teachers who move to a different district or cross state lines.
Despite these concerns, a recent report by Bellwether Education Partners found that Missouri’s Public School Retirement System ranks near the top of all national systems in terms of its rewards for long-term service. But one teachers union representative and the director of the state’s pension program say that it is unfair to compare the merits of a teacher’s retirement system with those of other professions.
Portability
Educators need to ask important questions before making a major job move, including whether their teachers’ pension will transfer with them. The answer to this question depends on the type of pension plan and the state. The top-ranking states for teacher pension systems tend to offer portability, but many others do not. Many states require educators to serve a certain number of years before they can qualify for a pension, and some have a vesting period that takes time away from classrooms. These factors can make it difficult for teachers to find new jobs.
This is a problem for teachers, because they are already struggling to save for retirement through their own 403(b) or 457 accounts. Moreover, these plans are often complex and have high fees. In addition, many of these teachers have little or no other financial savings options. As a result, they have little incentive to stay in the profession. Instead, they leave early, or cross state lines to work in a different system.
