HARTFORD PUBLIC SCHOOLS
(CONNECTICUT)
SUMMARY
Hartford Public Schools teachers enroll in a
traditional defined benefit plan under the
Connecticut Teachers’ Retirement System. In
Hartford, the crossover point occurs after 25
years of service, meaning that until that point the
value of what a teacher would receive in pension
wealth after she retires is less than the value of
her cumulative contributions. This is just two
years shorter than the national median crossover
point of 27 years for the defined benefit plans in
this study, and it is longer than the career of the
majority of American teachers.
1
Figure 1: A new teacher in Hartford Public
Schools must remain in the pension system for 25 years before she realizes a return on her
contributions
Note: Calculations assume inflation of 2.5 percent, a real interest rate of 2.5 percent, and a female teacher first hired in FY13 with an entry
age of 25.
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Years of service at separation
Value of teacher's pension benefit
Value of teacher's own cumulative contributions
About the District
Students
21,286
Teachers (FTE)
1,601
About the Retirement Plan
Type
Defined benefit
Coverage
Active members
49,808
Total members
Sources: Enrollment: NCES (2013–14). Retirement plan membership:
Urban Institute
(membership as of June, 2012)
THOMAS B. FORDHAM INSTITUTE
82
Take a look at Figure 1. The green line is the value of a teacher’s pension wealth should she separate from the
system after a given number of years of service. (She would not start receiving pension payments until she reaches
the age of retirement eligibility, even if she leaves the system before that.) Where the green line jumps quickly
away from $0 represents the time at which she vests. The red line shows the value of the total amount she has
contributed to the system up to that point. Where the red line lies above the green, the teacher’s contributions are
worth more than her benefits. In other words, her “net benefit” is negative. Where the green line is higher than the
red, her benefits are worth more than her contributions and her net benefit is positive. In Hartford, a new teacher
must stay 25 years to reach the crossover point (where the green line crosses the red) and receive any return on
her contributions after retirement. Exact figures are shown in Tables 1 and 2.
Let’s take a look at how this plays out should a teacher choose to separate from the system at different points.
WHAT IS THE CROSSOVER POINT?
This study asks: how long must a new teacher wait until the value of her retirement benefits exceeds the value of her
contributions (the “crossover point”)?
2
A new teacher begins contributing a percentage of her salary to her retirement system
the day she receives her first paycheck. The idea is that, over her career, she and her employer will make contributions to
prefund her benefit and, when she leaves the system, she receives retirement benefits. The total benefit the teacher receives
after she leaves depends on the plan’s parameters and provisions, among other factors.
In a traditional defined benefit (DB) plan, retirement benefits take the form of pension payments made periodically for the rest
of her life after retirement. The pension benefit is based on a formula: the number of years of service in the system, multiplied
by an average of her final years’ salaries, times an accrual factor, which is a percentage generally around 1 percent to 2.5
percent.
In order to receive any retirement benefits, a teacher must be vested in the system, meaning she has stayed long
enough that she’s eligible for a pension when she leaves. Vesting periods generally range from three to 10 years. A teacher can
only begin to receive benefits once she reaches retirement eligibility, a condition usually determined by some combination of
the teacher’s age and years of service.
3
The total value of the retirement benefit the teacher receives under a DB plan—her
pension wealth—depends on the yearly benefit, plus her age at retirement and life expectancy.
4
Before the crossover point in
a DB plan, a teacher’s expected lifetime retirement benefit is worth less than what she contributed over her career. After the
crossover point, her benefit is worth more than what she contributed. The longer it takes a new teacher to reach the crossover
point, the longer it takes for her to realize any return on her contributions.
In a defined contribution (DC) plan, retirement benefits are equal to what the retirement account is worth: her and her
employer’s contributions, plus any gains (or losses) from investment performance over time. She typically can transfer the
balance of her account to another retirement system, withdraw it completely as a lump-sum amount, or draw down balances
as periodic payments (less taxes, should she leave early). In a DC plan there is no crossover point, and the value of her benefits
will always be greater than her contributions (assuming the investment gained value over time).
A hybrid plan combines elements of both DB and DC plans. A teacher’s total benefits are equal to the balance of her retirement
savings account plus whatever pension benefits she is eligible for. Depending on the specific terms of the plan, there may or
may not be a crossover point.
In all three cases, to calculate the crossover point we compare the value of a teacher’s contributions with her expected
benefits.
5
While the concept of retirement “benefits” implies a positive return on contributions, the analyses presented in this
study show that, in order to reach the crossover point and receive a true benefit, new teachers in many of the nation’s largest
districts must remain in their retirement system for 20 or 30 years—or more. These teachers, usually enrolled in traditional DB
plans, are financially penalized if they leave at any point before the crossover. Moreover, they cannot enroll in a different
system that would give them larger, or more short-term, benefits. New teachers in DC plans, and most of the hybrid plans we
consider, do see a return on their contributions even early in their career.
(NO) MONEY IN THE BANK: WHICH RETIREMENT SYSTEMS PENALIZE NEW TEACHERS?
83
EARLY CAREER
A Hartford teacher who leaves after five years of service (or at any point before the vesting point of 10 years) is not
eligible to receive pension benefits at all, because she has not vested (Table 1). Her pension wealth is zero, and
after five years she has contributed $15,550 into the retirement system.
6
(In reality, should this teacher separate
from the system before she vests, she can only take a refund, which may or may not be credited with interest.)
Table 1. At key points in a teacher’s career, what is the value of her pension? What is the value of her
contribution? And what is the difference between the two?
Age
Years of
Service
Value of teacher’s
pension benefit (A)
Value of teacher’s cumulative
contributions to date (B)
Net benefit
(A-B)
30
5
$ 0
$ 15,550
-$ 15,550
40
15
$ 38,216
$ 82,092
-$ 43,876
45
20 $ 110,544 $ 135,238 -$ 24,694
50
25 $ 210,475 $ 205,869 $ 4,606
MID-CAREER
If she leaves the system with at least 10 years of service, she has now vested and is eligible to start receiving
pension benefits once she reaches retirement age.
7
But her net benefit is still negative—and will stay that way for a
long time. Say she separates from the system after 15 years—the average experience of a teacher who leaves the
profession.
8
Her pension wealth is $38,216, but at this point she has contributed a total of $82,092. Not only has
she not yet reached the crossover point, but her pension wealth is worth less than half of her cumulative
contributions.
AFTER 20 YEARS OF SERVICE
A 20-year career is longer than most teachers’ careers—fewer than one out of four teachers nationwide stays more
than 20 years.
9
But even after 20 years, a Hartford teacher still has not reached the crossover point, although the
difference between her contributions and pension wealth is smaller than it was mid-career. At this point, she’s
contributed $135,238 but would only expect to receive $110,544 in benefits.
AT THE CROSSOVER
After 25 years, a Hartford teacher finally reaches the crossover point, meaning her benefits are worth more than
her contributions. At that point, she will have contributed a total of $205,869 into the system and can expect
lifetime pension wealth accrual worth $210,475. Her net benefit becomes positive, though modest ($4,606). The
net benefit increases thereafter—after only one more year it will be more than $15,000.
Bottom line: Connecticut teachers who start at age 25 under the Hartford Public Schools salary schedule must wait
25 years to reach the crossover point. Teachers who exit the Connecticut retirement system early, or even after a
lengthy career, are financially disadvantaged compared to teachers who remain teaching under the same system
much longer—in this case, at least 25 years.
THOMAS B. FORDHAM INSTITUTE
84
TECHNICAL MATTERS
Retirement System
Teachers working in Hartford Public Schools belong to a traditional defined benefit pension plan in the Connecticut
Teachers’ Retirement System.
Plan Provisions by the Numbers
Eligibility for pension benefits
• Vesting requirement: 10 years
• Normal retirement eligibility requirements (age/years of service): Lesser of 60/20 and any/35 with a
minimum of 25 years of service in Connecticut
10
• Early retirement eligibility requirements for reduced benefits (age/years of service): Lesser of any/25 with a
minimum of 20 years of service in Connecticut and 55/20 with a minimum of 15 years of service in
Connecticut
Employer and employee contributions
• Employee contribution rate: 6.0 percent of salary
• Employer contribution rate: 23.65 percent of salary
• Refundable contributions: employee contributions plus interest
Defined benefit formula
A new teacher’s normal retirement benefit is equal to the formula below:
Annual benefit = (2.0%) x (YOS) x (FAS)
Where YOS = number of years of service, and FAS = final average salary, the average of the three highest years
of creditable earnings.
Summary of Plan Provisions
Benefits under public pension plans are typically based on a combination of age and years of service. Under normal
retirement eligibility requirements, a Hartford teacher qualifies for full pension benefits at age 60 with 20 years of
service, or at any age with 35 years of service as long as she has at least 25 years of service in Connecticut
(whichever comes first). If she has at least 10 but fewer than 20 years of service, the annual benefit is equal to ten
percent of in-state years of service in-state plus one percent of out-of-state years of service, multiplied by the
average salary of her final three years. If she has more than 20 years of in-state service, the annual benefit is equal to
a teacher’s years of service, multiplied by the average salary of her final three years, times an accrual factor of 2.0
percent.
11
A teacher vests into the pension system after 10 years, meaning after 10 years of service she qualifies for
a pension benefit payable for life, starting at the earliest age that she becomes eligible for normal retirement.
12
The
plan does offer reduced pension benefits for early retirement, available at any age with 25 years of service
(minimum 20 years in-state) or at age 55 with 20 years of service (minimum 15 years in-state), whichever comes
first.
The employer contribution rate is set at 23.65 percent of earnings. The employee contribution rate is set at 6.00
percent of earnings. Hartford teachers do not pay into Social Security.
Assumptions for Computing Pension Wealth
• Entry age: 25 years old
• Gender: female
• Teacher has bachelor’s degree for first five years; master’s degree for the remainder
13
• Survival probabilities from 2007 CDC Life Tables
14
• Teacher salary schedule for 2012–13 school year
15
• Overall rate of return: we use each system’s own assumptions for return on investments
(NO) MONEY IN THE BANK: WHICH RETIREMENT SYSTEMS PENALIZE NEW TEACHERS?
85
Sources: Teacher salary schedule is from district website (or requested directly from the district where required).
The salary schedule is supplemented by the district collective bargaining agreement and/or teacher work rules for
the 2012–13 school year where applicable/necessary.
16
Retirement plan parameters are primarily taken from a
database assembled by the National Council on Teacher Quality, and supplemented where necessary with
information from plan documents.
17
Table 2: Benefits, contributions, and net benefit for a representative new teacher in Hartford Public
Schools
Age
Years of
Service
Value of teacher’s
pension benefit (A)
Value of teacher’s cumulative
contributions to date (B)
Net benefit
(A-B)
25
0
$ 0
$ 0
$ 0
26
1
$ 0
$ 2,561
-$ 2,561
27
2
$ 0
$ 5,373
-$ 5,373
28
3
$ 0
$ 8,450
-$ 8,450
29
4
$ 0
$ 11,836
-$ 11,836
30
5
$ 0
$ 15,550
-$ 15,550
31
6
$ 0
$ 20,000
-$ 20,000
32
7
$ 0
$ 24,882
-$ 24,882
33
8
$ 0
$ 30,282
-$ 30,282
34
9
$ 0
$ 36,155
-$ 36,155
35
10
$ 10,000
$ 42,633
-$ 32,633
36
11
$ 13,580
$ 49,490
-$ 35,910
37
12
$ 17,901
$ 56,749
-$ 38,849
38
13
$ 23,333
$ 64,721
-$ 41,388
39
14
$ 30,027
$ 73,160
-$ 43,133
40
15
$ 38,216
$ 82,092
-$ 43,876
41
16
$ 47,242
$ 91,548
-$ 44,305
42
17
$ 57,952
$ 101,557
-$ 43,605
43
18
$ 70,609
$ 112,151
-$ 41,543
44
19
$ 85,514
$ 123,366
-$ 37,852
45
20
$ 110,544
$ 135,238
-$ 24,694
46
21
$ 126,213
$ 147,804
-$ 21,592
47
22
$ 143,803
$ 161,106
-$ 17,304
48
23
$ 163,538
$ 175,187
-$ 11,649
49
24
$ 185,669
$ 190,092
-$ 4,423
50
25
$ 210,475
$ 205,869
$ 4,606
51
26
$ 238,271
$ 222,570
$ 15,701
52
27
$ 269,408
$ 240,249
$ 29,160
53
28
$ 304,279
$ 258,962
$ 45,317
54
29
$ 343,321
$ 278,771
$ 64,550
55
30
$ 387,024
$ 299,739
$ 87,285
Pension wealth, contributions, and net pension wealth for a female teacher who begins teaching at age 25. Ex: After her fifth year of service,
her pension benefits are worth $0 (A) and her cumulative contributions are worth $15,550 (B). Her net pension wealth accrued at this point is -
$15,550, which is her pension wealth minus her cumulative contributions (A-B). All values are adjusted for inflation.
THOMAS B. FORDHAM INSTITUTE
86
ENDNOTES
1
National Center for Education Statistics, Digest of Education Statistics, Table 209.10,
http://nces.ed.gov/programs/digest/d14/tables/dt14_209.10.asp.
2
Results are based on the retirement plan’s rules as they apply to new hires who began in FY13. Provisions for state-covered
plans were obtained from the National Council on Teacher Quality pension database
(http://www.nctq.org/statePolicy/2015/nationalFindings.do?policyIssueId=4&masterGoalId=22).
3
A vested teacher who leaves a DB pension plan before reaching retirement eligibility faces a choice: She can leave her
contributions in the pension fund and wait until she reaches retirement age to receive benefits. Or she can “cash out” and
immediately receive a refund of what she has contributed up to that point, sometimes with interest. In rare cases, refunds
may also include some or all of the employer contributions, potentially with interest, depending on the terms of the plan
and whether the teacher is vested. There are also exceptions where a refund benefit is actually less than what the teacher
put in. For instance, Illinois keeps 1 percent of earnings for survivor benefits (see
https://trs.illinois.gov/members/pubs/tier2guide/Refunds.pdf).
4
In technical terms, pension wealth is the total expected value of a teacher’s yearly stream of pension payments over her
lifetime, discounted back to the present and accounting for life expectancy, conditional on the age of separation. See
Appendix B.
5
The value of a teacher’s contribution is the employee’s required payment into the retirement system, grown by each system’s
assumed rate of return.
6
“Contributions” here and throughout refer to the value of a teacher’s total contributions—the amount she contributes,
grown by each system’s assumed rate of return.
7
Retirement age depends on years of service; see the “Technical Matters” section for more.
8
S. Provasnik and S. Dorfman, Mobility in the Teacher Workforce (Washington, D.C.: NCES, 2005),
http://nces.ed.gov/pubs2005/2005114.pdf.
9
NCES, Digest of Education Statistics, Table 209.10, http://nces.ed.gov/programs/digest/d14/tables/dt14_209.10.asp.
10
Connecticut also offers a proratable retirement, for teachers who retire at age 60 or older with at least 10 years of service in
Connecticut but fewer than 20 years of service total. The benefit is a teacher’s final average salary times a “total service
percentage” equal to [(10%) x (YOS in CT) x (YOS in CT) + (1.0%) x (YOS out-of-state)]
11
She cannot receive an annual benefit of greater than 75 percent of her final average salary, which is equivalent to a
maximum of 37.5 years of applicable years of service. If she has more YOS, her benefit does not increase.
12
A teacher who opts for a refund receives the total of her employee contributions, plus interest. A teacher who leaves the
system prior to vesting can receive a refund only; one who leaves after vesting but before retirement eligibility can choose
either a refund or deferred pension benefits.
13
According to the Beginning Teacher Longitudinal Study, 80 percent of beginning teachers had a bachelor’s degree See NCES,
Beginning Teacher Longitudinal Study, http://nces.ed.gov/surveys/btls/cohort.asp
(accessed October 30, 2016).
Additionally, given that about 55 percent of the current teaching workforce has a master’s degree or higher, but
approximately 21 percent of current teachers have five or fewer years of teaching, the analysis assumes that a teacher who
remains five years will have a master’s degree by that point.
14
E. Arias, “United States Life Tables, 2007,” National Vital Statistics Reports 59, no. 9 (Hyattsville, MD: National Center for
Health Statistics, September 2011).
15
“Professional growth” credits are not included in salary calculations. First, they cannot be applied uniformly across districts:
one district may give teachers a salary increase when they earn, for example, 10 credits, while another may specify a salary
increase at 20 credits. Second, there are no data available as to the rate at which teachers earn salary credits throughout
their career. As others have demonstrated, however, the provisions governing public pension plans will be the primary
determinants of benefit accrual patterns (see R. Costrell and M. Podgursky, “Peaks, Cliffs, and Valleys: The Peculiar
Incentives in Teacher Retirement Systems and their Consequences for School Staffing,” Education Finance and Policy 4, no.
2 (2009), 175–211). Variation in a teacher’s earnings path, such as that just described, will likely have limited impact on
pension wealth accrual patterns or the timing of the crossover point.
16
For example, some districts specify longevity payments in the contract instead of in the salary schedule.
(NO) MONEY IN THE BANK: WHICH RETIREMENT SYSTEMS PENALIZE NEW TEACHERS?
87
17
NCTQ, “2015 Pension Flexibility,”
http://www.nctq.org/statePolicy/2015/nationalFindings.do?policyIssueId=4&masterGoalId=22
. Some plan parameters
were also independently verified using the Urban Institute’s State and Local Employee Pension Plan Database
(http://apps.urban.org/features/SLEPP/data.html).