Pension Theory Versus Pension Reality – Education Next

By Chad Aldeman

In theory, defined benefit pension plans like those offered to 9 out of 10 teachers offer career public servants a steady stream of retirement income, adjusted for inflation as they age, that’s guaranteed to last their entire lifetime.

In practice, only half of teachers stick around long enough to qualify for any pension at all. Those that do must remain 20, 25, or 30 years in order to qualify for a pension worth more than their own contributions. And in a field with significant turnover, only a tiny percentage of teachers last a full career and qualify for the theoretical, idealized pension.

Unfortunately, too much of our debate about pensions focuses on theory rather than reality. The latest example comes from a report from William B. Fornia and Nari Rhee published by the National Institute on Retirement Security NIRS, in which the authors attempt to estimate whether pensions or 401k-style defined contribution plans are a “better bang for the buck.”

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