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What Risks Exist for Retirement Plans

Everyone knows that if you put your money in the stock market, you’re taking some risk. And teachers who have individual retirement plans—i.e., a plan outside of a traditional pension, such as a supplemental plan or a 401k from a previous employer—take on different levels of personal investment risk. But what risks exist for teachers who have guaranteed income pension plans?

While all retirement plans have some kind of risk, the structure of pension plans generally protects individual teachers from feeling them. But there are significant risks for teachers in pension systems, including:

  • States and employers failing to contribute enough to the pension fund
  • Investment returns not meeting expectations
  • Actuaries working for the pension fund measuring benefits incorrectly
  • A board of trustees adopting flawed actuarial assumptions

For teachers, these risks could lead to any of the following:

  • Your contribution rate into the pension plan could go up, meaning you’d be paying more out of each paycheck for the same promised benefit in retirement.
  • Your state or school district could deny you a raise to instead cover shortfalls in pension funding.
  • Your future colleagues could be offered lower benefits to make up for rising overall costs.
  • In retirement, your cost-of-living adjustment could be reduced or eliminated.
  • In theory, the pension benefits promised to you might be reduced, though this has only ever happened in rare cases because of constitutional protections in many states.

Even though pension funds manage money themselves and insulate you from the direct risk of investing money in financial markets, other risks could still substantially affect you and your colleagues.

This module will go through each of these funding risks in detail.

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