States Slashing Educator Retirement Funds
Total retirement fund: $95,000.
Estimated retirement age: Pretty much never.
That was the story for Sandy Gay, a teacher in West Virginia, after the state switched from a “defined benefit” retirement plan that would have given her $2,500 a month, and substituted a “defined contribution” plan that didn’t guarantee any specific retirement income but instead, put money into a risky fund, with Gay bearing all the risk of the gyrating stock market.
And the $95,000 figure was in 2007, before the Great Recession.
Fortunately, the West Virginia legislature came to its senses, restored its retirement system, and let Sandy Gay back in.
But with state revenues and stock indexes down, many states are moving to slash spend on retirement pensions, according to Bill Raabe, NEA’s Director of Collective Bargaining and Member Advocacy.
In 2010, according to NEA research, 17 states made significant changes to their retirement systems, more than in any other year. Almost all of these changes were for the worse:
• Higher payments from employees;
• Reduced benefits;
• Smaller cost-of-living adjustments;
• More restrictions on early retirement;
• Shifting pension plans toward “defined contribution” with no guaranteed retirement income, the approach that West Virginia abandoned.
Raabe says media reports have focused on states with badly underfunded pension systems, but the great majority of state pension systems are in good health and don’t need any drastic action.
The ones in trouble, he says, are mostly in states whose legislatures failed to make required contributions to their plan because they thought a soaring stock market would bring in enough money.
But more states are likely to take up pension plan changes this year as the sour economy continues.
“Pensions are shaping up to be the number one compensation challenge facing our state affiliates in the year ahead,” says Raabe.
So what does this mean for most educators?
It means that when the state association organizes a citizens’ lobbying drive to get the legislature to do the right thing, get involved. The pension you save will be your own.
Member activism was the reason West Virginia’s Sandy Gay was able to retire in 2008, on a modest but secure pension, when she was 63.
“For four or five years, I went to talk to every legislator I could find,” she recalls. Gay’s determined lobbying was part of an intense campaign by the West Virginia Education Association. But she didn’t actually think the drive would succeed. “I had given up hope. I thought I would work until I died,” she says.
Today, Gay is enjoying a very busy retirement. Her pension is not lavish but “I don’t need a lot of things. I golf, I visit my grandchildren, I work with the Shriners hospital program for children.” Contacted just after Thanksgiving, she was hard at work organizing a Christmas party for the Shriners children.
“Life is full,” she says.