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Social Security, Teacher Pensions, and the “Qualified” Retirement Plan Test

Chad Aldeman
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Most Americans depend on their Social Security benefits to lead a comfortable and secure retirement. And yet not all workers can count on Social Security. 

Due to a historical quirk, many state and local government employees lack the retirement and social safety net offered by Social Security. Public school teachers constitute one of the largest groups of uncovered workers. Nationwide, approximately 1.2 million active teachers (about 40 percent of all public K-12 teachers) are not covered. Those teachers are concentrated in 15 states (Alaska, California, Colorado, Connecticut, Georgia, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Missouri, Nevada, Ohio, Rhode Island, and Texas) and the District of Columbia, where many or all public school teachers neither pay into nor receive benefits from Social Security. 

In theory, Congress has created rules to protect those workers from inadequate retirement savings. However, in a new report, author Chad Aldeman shows that the theory is far from reality. The rules governing retirement plans, like the ones enrolling 90 percent of teachers, leave teachers who stay in the classroom less than 15 or 20 years with inadequate benefits. While the current rule is easy for state policymakers to follow, it ignores many other variables, such as contribution rates and interest, that materially affect the retirement benefits workers eventually receive. Worse, the current provisions offer better protections for the highest-paid, longest-serving workers at the expense of the most vulnerable workers. 

This situation is not trivial. In addition to millions of active workers who aren’t covered by Social Security, there are currently about 20 million retirees who performed some government service as non-covered employees. Many of those workers are now facing a lower standard of living in retirement due to the flaws in these seemingly arcane rules. 

In “Social Security, Teacher Pensions, and the ‘Qualified’ Retirement Plan Test,” Aldeman outlines the history of Social Security benefits in the public sector, describes the current rule and how it is intended to work, and then shows its limitations. As a concrete example, he analyzes the retirement plans covering approximately 1.2 million active public school teachers in the 15 states and the District of Columbia that do not offer universal Social Security coverage for teachers. The report concludes with suggestions about how to protect these workers going forward. 

Download the full report here or read it in the viewer below.