Pension Glossary
The Teachers Retirement and Pension System has been the subject of newspaper articles and of conversations at the State House and beyond. Study the terms below so you, too, can contribute to the discussions fully armed with “pension-speak!” Your students and colleagues count on you to help make the pension system attractive to young educators and mid-life career changers seeking a gratifying profession both intellectually and financially!
Teachers Retirement System – the “old system” – closed to new members on December 31, 1979. Currently has less than 11,700 active members.
Teachers Pension System – the “new system” –includes everyone hired on or after January 1, 1980. Currently has more than 79,300 active members.
Defined Benefit – Pension benefit is guaranteed for life and determined based on a formula; usually includes death benefit, disability benefit.
Defined Contribution – Pension benefit is based on contributions made by employee and sometimes by the employer. Does not usually provide death or disability benefits. No benefit is guaranteed.
Benefit Formula – a formula for computing the amount of pension benefit payable under a retirement plan, usually based upon salary, length of service and age.
Average Final Compensation – the average rate of salary for a specific period of time generally preceding retirement, in Maryland it is the three highest years of salary.
The Board of Trustees of the State Retirement and Pension System of Maryland – charged with the general policy direction and administration of the retirement and pension systems. In Maryland it is made up of 14 members, two of whom are elected by participants in the Teachers’ Systems. Currently the teacher trustees are Bill Brown, middle school teacher from Montgomery County and Carl Lancaster, a retired teacher from Prince Georges County.
COLA – cost of living adjustment that helps maintain original purchasing power of the benefit. Members of the Pension System are eligible for up to a 3% compounded COLA each year.
Multiplier – number used in computing benefit formula that, along with final average salary and years of service, determine pension benefit.
Defined Benefit vs Defined Contribution
Shifting public education employees from a secure defined benefit pension system to a risky defined contribution plan is being contemplated by some in the General Assembly.
The Maryland State Department of Education projects the need to hire an additional 100,000 teachers over the next 10 years. A move to a defined contribution will make Maryland less attractive to highly skilled professionals than neighboring states which offer a better benefit package.
Defined benefit
- Defined benefit pension plans guarantee a certain monthly benefit for life based on salary and years of service.
- Defined benefit plans give employees a fixed amount of money at retirement based on their salary and years of service.
- Teachers in Maryland are already paid less than comparable professionals. A secure retirement has been one of the benefits that helped give teachers incentive to stay in the classroom.
Defined contribution
- Using individual savings accounts, employees invest the money on their own. The ultimate retirement benefit depends on the investment earnings of the plan. The benefit ceases once the account is depleted, regardless of the employee’s age or circumstances.
- Defined contribution plans shift risk from employers to employees.
- Defined contribution plans promise no guaranteed retirement benefit.
- A defined contribution plan does not provide employees protection from stock market volatility or corporate fraud.
