Tuesday, March 13, 2018
The Tier VI Teacher Retirement Game Is A Sucker's Game.
The Tier VI retirement game is based upon reasonably conservative assumptions on how difficult it is for a Tier VI teacher to reach their goal of full retirement benefits.
The Tier VI teacher retirement game requires one dice (die) and depends on the law of probability. Based on the assumptions used for the game, only 9.2% of all Tier VI teachers will be able to reach the goal of full retirement benefits. That's one out of every 11, not good odds. The assumptions used in the Tier VI retirement game are as follows:
The first step is to reach the 10 year vesting period necessary to receive a pension. Based on the Manhattan Institute report on Fairer Pensions, only 33% of all New York City teachers (Mostly Tier IV) will last long enough in the New York City Public Schools to be vested for a pension. This is a conservative assumption since the study was done before the New York State Teacher Evaluation System and the use of the Charlotte Dainelson rubric that is used as a weapon against teachers. Other cities report percentages in the teens and that will probably be the value for Tier VI teachers in the future.
Next, for those 33% of Tier VI teachers that are vested, the next goal is obtaining retiree health benefits, To achieve retiree health benefits the Tier VI teacher must have 15 years in the system, Since this is only 5 years over the pension vesting period, I assumed that only 17% of Tier VI teachers will not achieve that goal.
To get to the maximum percentage (1.75%) to calculate the 5 year Final Average Salary (FAS), the Tier VI teacher must have a full 20 years in the pension plan. Otherwise the FAS is calculated using a 1.67% factor rather than the 1.75% factor once they completed their 20 year of service. According to various studies, only 67% of the teachers (Tiers 1 thru 4) actually reach the 20 year threshold if they had completed 15 years This is true in New York City where veteran teachers are targeted. Therefore, in the Tier VI retirement game I conservatively used 67% of the Tier VI teachers who reached 15 year of service will last another 5 years to the 20 year goal of maximum percentage when calculating their five year FAS.
Finally, to reach full retirement benefits and a maximum pension, the Tier VI teacher must reach 63 years of age. Otherwise they are subject to an age reduction factor of as much as 48%! Only 50% of Tier VI teachers who meet the above criteria will reach full retirement age.
Is it any wonder that a Tier VI teacher has the odds stacked against them as they strive for full retirement benefits? If you play the game you only have a 9.2% chance of achieving your goal and that's probably close to what will happen as the Tier VI teacher moves closer to retirement in in the year 2032 and beyond.
The bottom, line is for Tier VI teachers, reaching full retirement is a sucker's game.