There are many retirement programs out there, from employer-matched 401(k) accounts to aggressive stock market portfolios. The Teacher Retirement System is the program used to give educators a safe, steady, reliable income during retirement. Though it varies state-by-state, the core principles of the Teacher Retirement System remain the same across the country.
How Does the Teacher Retirement System Work?
The Teacher Retirement System (TRS) is a network of state and city-level organizations. Together, the administer retirement benefits for public education employees within their states. Since each state’s organization offers a different range of plans and benefits, teachers from different areas may receive different pension plans and retirement account options.
America’s largest states tend to maintain the largest teacher retirement systems. In fact, the California State Teachers Retirement System and the New York State Teachers’ Retirement System are among the 10 largest pension plans in the country.
Generally speaking, the Teacher Retirement System gives educators access to traditional defined-benefit pensions and defined-contribution plans, including 403(b) plans that function much like 401(k)s.
The TRS is meant to provide educators with monthly guaranteed benefits through their retirement. This is especially important in the 15 states that still haven’t incorporated public school teachers into the Social Security program. In those states, which include Alaska, Missouri, Ohio, and Colorado, teachers aren’t eligible for Social Security upon retirement. The Teacher Retirement System provides the funding they need to receive a pension
Most educators invest in a 403(b) plan through the TRS. Though they’re not as well known as their cousin the 401(k), 403(b) accounts are popular because money can be invested tax-free. Tax isn’t paid on the money in a 403(b) account until it’s withdrawn in retirement. Since most retirees fall into a lower tax bracket during retirement than they did during employment, this means they can access their money at a lower cost.
Finally, the TRS is especially helpful for teachers who work in the public school system for decades. The total amount of pension provided is determined using a pension factor multiplied by age, number of years worked, and final average salary. This works in the best interest of seasoned teachers who retire long after hitting the highest salary bracket.
Some Teacher Retirement System programs also offer disability and death benefits to its members.
The Teacher Retirement System is helpful in theory, but it depends heavily on state contributions. With many states falling behind and struggling to provide the funding they promised, TRS programs across the country find themselves facing a shortage in pension funds. In response, some states now require teachers to contribute a greater share of their paychecks to their retirement accounts, leaving them with less money to live on.
For example, teachers in Colorado were forced to contribute an additional 2% of their wages to their pensions due to a $29 billion state deficit in 2017. They also adjusted the new teacher retirement age from 58 to 64. All of this occurred in a state where teachers are already among the lowest-paid educators in the nation.
The bottom line? No system is perfect, but the TRS system has its bright spots. Research the specific details about your state’s teacher retirement system in order to learn more and prepare for the future.