Ask Jack: Does the CalSTRS pension provide retirement security for California educators?

Ask Jack Jack Ehnes

Yes, according to a recent study, Are California Teachers Better off with a Pension or a 401(k)?, conducted by Nari Rhee, PhD, of the UC Berkeley Center for Labor Research and Education and William Fornia, FSA, of Pension Trustee Advisors, the CalSTRS defined benefit pension provides a better, more secure retirement income when compared to an account-based cash balance or 401(k)-style plan.

Key findings from the study conclude that:

  • Most classroom teaching in California is performed by long-career teachers who are well-positioned to benefit from a traditional pension.
  • In fact, 75 percent of active educators will have worked 20 or more years by the time they depart from CalSTRS.
  • The CalSTRS defined benefit pension becomes greater than an idealized 401(k) defined contribution plan at age 51 and 86 percent of active educators stay in California schools until at least age 51.
  • The CalSTRS defined benefit pension becomes greater than a generously structured cash balance plan at age 56 and 79 percent of active educators will stay on the job until age 56.
  • Conversely, only one out of seven teachers currently teaching in California schools will accrue a lesser benefit under the CalSTRS defined benefit plan than they would if contributions were deposited into a defined contribution, 401(k)-type plan—assuming average investment returns.
  • 401(k) and cash balance plans generate their own risks and inequalities in retirement income, decreasing the incentive for early and mid-career teachers to stay, and making it harder for older teachers to retire.
  • The CalSTRS Defined Benefit Program also acts as a powerful retention tool that serves the retirement needs of California’s educators well, while offering portability throughout the largest education labor market in the U.S. 

Overall, the CalSTRS pension benefit structure – which is designed to reward educators who stay in the classroom until at least early retirement age – is better suited to meet the needs of the active teaching workforce than a 401(k) or cash balance plan.