Back-Loaded Benefits Penalize Public Workers

The Facts

  • Under the back-loaded structure of traditional Defined Benefit plans, most workers do not actually begin to earn valuable retirement benefits until late in their careers—well after the age at which they should begin to start saving.
  • This presents a further strain given that many public workers are not enrolled in Social Security and do not receive those benefits upon retirement.

The majority of public workers will leave their jobs without enough savings to reach a secure retirement

Many traditional Defined Benefit pension plans are failing to meet the needs of today’s workers. While some employees who spend all of their working years in the public sector may earn generous pensions upon retirement, the majority of public workers will leave their jobs without enough savings to reach a secure retirement and will be forced to play catch-up for the rest of their careers.

Under the back-loaded structure of traditional Defined Benefit plans, most workers do not actually begin to earn valuable retirement benefits until late their careers—well after the age at which they should begin to start saving. If these workers change careers, leave the public sector, or move to a different state, they often forfeit considerable savings that public employers contributed on their behalf as well as the interest that was earned on those investments. This can seriously undermine workers’ ability to reach a secure retirement, as many public workers are not enrolled in Social Security and depend entirely on their pension and personal savings to finance their retirement. The problem is compounded by the fact that many new employees have endured benefit reductions as a result of plans’ recent funding challenges, leaving them in an even more precarious position.

In New York City, for example, half of all teachers who enter the system as recent college graduates will leave the profession by age 40. These workers will qualify for district pension benefits worth only $25,000 or less—despite the fact that some of them will spend up to 15 years teaching. Yet, if these teachers remained in the classroom until they were 50—just 10 years longer—they would qualify for a pension benefit that would be roughly seven times larger. And although teachers in New York begin to accrue benefits more quickly at the end of their careers, less than a third of the teaching corps will remain in the district long enough to earn the maximum pension benefit at age 62. The bottom line is that those who dedicate a significant portion of their lives to educating our children deserve to be rewarded—but under the current system, that simply isn’t the case for many of today’s hard-working teachers.