Defined Benefit Pension Plans

Retirement plans vary. People who had little to live on after their work life had ended lost everything in 1929. They were not the Wall Street speculators who threw themselves out of windows, not to be confused with the speculators of 2008. They were human beings who had worked as miners and waitresses and store clerks and teachers who entered 1930 with nothing.
Enter the 1935 Social Security Act, the “Old-Age and Survivors Insurance” program, as a cushion against abject poverty for those no longer able to work. Other than a start-up seeding of dollars to provide for those already retired or about ready to retire, the old-age and survivors policy was funded by payroll taxes invested in a retirement fund. It is the model for a defined-benefit (DB) pension plan. Social Security then and now was meant to cover to gap if a person’s own retirement savings failed.
Fast-forward to present day savings. Somewhere – before credit cards – saving, not debt, was the long range plan of workers in America. Bank failures, wars and Diners Club pushed the shift, but state and local governments, always being the last to change with societal tends, established the idea of pension plans modeled on Social Security. These, like Social Security, used a worker’s life time and high-five (or other number of years) earnings to calculate a “defined” retirement benefit, based on earnings not savings, and therefore predictable, dependable and guaranteed by law.
Defined benefit pension plans have long been seen as an employment benefit, part of compensation, for otherwise generally lower wage public employment. The funds are controlled by state and local governments, not private – for profit – investment companies or banks. Public employees are hired and work with the understanding that they are earning this benefit, not just getting it.
However, there’s bad news. Social Security and your TRA pension are a bare minimum for retirement. Teachers and other public workers should be saving on their own as well. Current estimates are that a retiree at 66 may expect to live 20 to 25 years in retirement, and perhaps more. One can hardly “plan” for less. To assure financial security over that amount of time, one should have a retirement value of about $900,000, and that might still be too little. It almost certainly will be too little in 5, 10, or 15 years. Social Security and TRA assets will cover about 2/3’s of that. Teachers must still save, early and hard. Better to manage financial hardship at 30 than 80. SAVE.
Your Social Security and Defined Benefit TRA pension benefits are yours. Don’t throw them away and don’t let anyone take them. Without them, you will have to save much, much more and your retirement may still collapse with a bad investment market. Fight for what’s yours.