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Benefit Solution: Guaranteed Income Plan Benefit Design for the 21st Century

A good starting point: The size of benefits offered by a guaranteed income plan should at least match what you would receive from Social Security. Since there are more than 1 million teachers without access to Social Security, this is an important standard.

But this is just the minimum, and roughly 2/3rds of teachers do already have Social Security. So how much more should guaranteed income plans offer? The answer depends on objectives.

Policymakers should consider what objective the retirement plan is trying to accomplish. If the objective is to offer a path to adequate retirement security, the pension benefit should be big enough that after working a full career, teachers receive retirement income at least 60% to 80% of their final average working salary (factoring in access to Social Security).

Pension benefits should also have some way to help protect you from inflation. The U.S. isn’t dealing with the kind of inflation problems experienced in the 1970s right now, but even modest inflation will add up over several decades. Ideally, pension benefits include an automatic cost-of-living adjustment (COLA) linked to actual inflation. That way retirees get a benefit increase when the cost of living goes up, which means their pension income doesn’t lose value over time. That provision also allows the actuaries and pension board for a guaranteed income plan to forecast the costs of the COLA ahead of time, preventing the problems caused by ad hoc or annual COLA increases.

Pension benefits should be as portable as possible, which means if a teacher leaves before qualifying to retire they can take their money with them with a good interest rate on those funds (4% or higher, ideally). Plus they should be able to take a portion of the money the employer contributed as well. Exactly how much could vary depending on how long someone works, but the more that teachers can take with them when they leave, the more they’ll be able to stay on a path toward retirement security.

Finally, retirement systems should provide robust access to financial education and advice for retirement planning so that teachers—busy professionals who have dedicated their careers to helping students— are not left to fend for themselves.

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