The Orange County Register on teachers not receiving pensions:
Labor unions and other supporters of traditional defined-benefit pensions tout the oftentimes generous and guaranteed nature of pensions, but many — and sometimes even most — do not come out ahead.
This is particularly true for California teachers, according to a recent University of Arkansas study. In fact, the authors estimate that fully two-thirds of all teachers in the California State Teachers’ Retirement System will be “pension losers” because either they will be among the 40 percent of new teachers who leave before they satisfy CalSTRS’ five-year vesting period, and thus receive no pension, or the value of their pension will be less than what they contributed to the system. A teacher who starts her career at age 25, for example, will have to work until age 53 before merely breaking even with her employer’s pension contributions, the study concludes.
“Under traditional defined-benefit plans, employees and employers make contributions of a given percentage of pay, but those contributions are an average of widely varying individual costs to fund the retirement system,” the authors note. Those costs vary greatly based on how old teachers are when they start working and how many years they end up working.
“With benefits de-linked from contributions, some individuals will receive benefits that cost more than the contributions made on their behalf and some will receive less, effectively a system characterized by cross-subsidies,” they explain.
In other words, those who remain in the system for a very long time are significantly subsidized by newer — and even many not-so-new — teachers.
This is in stark contrast to 401(k)-style defined-contribution plans or cash balance plans, a hybrid that has elements of both defined-benefit and defined-contribution plans. “Under such plans, there would be no cross-subsidies,” the authors observe.
There is also the matter of how