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State lawmaker floats pension alternative for new teachers

November 10, 2015

A key state lawmaker says he plans to sponsor a bill in the next legislative session that would allow new Indiana teachers to choose a retirement program similar to a 401(k) plan instead of the traditional pension system.

The goal, said Rep. Bob Behning, R-Indianapolis, is to offer flexibility for millennial teachers and those coming to the teaching profession after a career change. He anticipates the change to be relatively cost-neutral to the state.

“I think it’s an option we ought to be giving people,” said Behning, who is chairman of the House Education Committee. “A lot of millennials will tell you they want the flexibility to do other things in life. They may not stay in a set career for 10 or 15 years. It just is a more attractive benefit.”

But the state’s teachers union is already skeptical of the idea, saying it “won’t do anything to help support the profession.”

Currently, Indiana teachers are vested in their pension plans—also called defined benefit retirement plans—after 10 years. At retirement, they receive regular payments, which are determined by their salary and their years of service.

Under Behning’s plan, the state would start offering new teachers the chance to instead choose a defined contribution retirement plan, like a 401(k). Usually, both the employee and employer contribute to the plan. Those funds are then invested in mutual funds, stocks or other sources to amplify the savings until retirement.

A new defined contribution plan would likely look similar to Indiana’s Legislators Retirement System, said Behning. In that fund, legislators contribute 5 percent of their salary and the state matches a certain percentage of that contribution.

“We’re moving more to defined contribution for our state employees,” said Behning. “It makes sense we would move teachers along with that.”

Behning said new teachers who still want to take part in the Teachers Retirement Fund would be able to. Current teachers wouldn’t be able to switch from their pension plan to a 401(k) plan. The Teachers Retirement Fund currently has about 70,000 active members and 53,000 benefit recipients.

But the idea is already under fire from the Indiana State Teachers Association. President Teresa Meredith said ISTA wouldn’t make a decision about whether to support or try to block the bill until members see the legislation.

“At a time when we should be talking about ways to keep people in the profession and motivate them to stay, we need to be talking about other ways to support their future rather than giving them options on how to get out,” Meredith said.

Behning said he doesn’t understand the criticism.

“We’re not suggesting the state reduce any type of benefit or school districts reduce the amount of retirement [contributions],” Behning said.

He’s not sure yet what the appetite is for the legislation, he said, but he will continue to explore the idea with other lawmakers.

“I’ve talked to several fiscal leaders and they believe it makes sense,” Behning said. “I can’t read tea leaves.” 

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