Last Updated on March 30, 2023 by George
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Arkansas public school and education employees have had access to retirement benefits through the Arkansas Teacher Retirement System (ATRS) since 1937. ATRS strives to provide its members and stakeholders exceptional service while pursuing excellence in pension fund management. For employees working in public education, ATRS is a defined benefit plan, and it is managed as a “qualified” retirement plan by IRS 401 provisions (a). The benefit clauses for our members are contained in state statutes at Arkansas Code 24-7-201 et seq., and ATRS Rules and Regulations supplement them.
The defined benefit (DB) pension plan for teachers in Arkansas follows a basic structure typical of other states. In contrast to other retirement plans, the value of a teacher’s pension at retirement is not based on their contributions or those made on their behalf by their employer. Even though these contributions are frequently managed by private equity and hedge funds and invested in the market, a teacher’s pension wealth is not derived from the returns on those investments. Instead, a formula based on their final salary and years of experience is used to determine it.
How Are Teacher Pensions Calculated in Arkansas?
A formula is used to calculate pension wealth. How an Arkansas teacher pension is determined is shown in the graph below. But it’s essential to remember that the state bases an educator’s final payment on their average salary over the previous three years, which averages out to their highest three years. For instance, a teacher with 25 years of service and an average final salary of $70,000 would be qualified for an annual pension benefit equal to 53.8% of their final salary.
Calculating Teacher Pension Wealth in Arkansas
2.15% Multiplier x Avg. salary of highest three years x Years of service
Who Qualifies for a Teacher Pension in Arkansas?
Teachers must work for some years before becoming eligible for a pension, as in most states. In Arkansas, the vesting period is five years. After five years of employment, educators are qualified for retirement, but the pension may be worth little. Additionally, it is only available to educators once they reach the state retirement age.
Based on their age and years of experience, the state establishes specific timeframes during which teachers can retire with benefits. When they turn 60 and have accrued at least five years of service, new teachers in Arkansas can withdraw with all of their advantages. At any age, teachers who have worked for at least 28 years are eligible for benefits-based retirement.
Additionally, Arkansas permits teachers to retire early at any age after accumulating at least 25 years of service. Still, those who choose to do so have their benefits reduced by their years of experience and the time of year they decide to retire.
How Much Does Arkansas’s Teacher Pension Plan Cost?
Teachers’ employers and contributions to the plan are required as they work. The state legislature determines these contribution rates, which are subject to change each year. While the state made a 15% contribution, teachers made a 6.01 percent pension contribution in 2018. The Arkansas teacher pension fund received 21.01 percent of the state’s teacher salaries. But not all of that investment results in advantages. While each teacher contributes 6.01 percent of their salary toward benefits, the state only matches 6.26 percent. The final 8.74 percent state contribution will reduce the pension fund’s debt.
Finally, teacher pensions are not portable in Arkansas, as in most states. It means that even if a teacher stays in the teaching field after leaving the ATRS system, they cannot take their benefits with them. As a result, a teacher who quits their job or moves across state lines may have two pensions, but their combined value will be lower than if they had stayed in one system throughout their entire career. In other words, if an educator decides to stop teaching altogether or moves across state lines to work in another state, the absence of benefit portability will harm their long-term retirement savings.
The teacher retirement system in Arkansas, like most state pension funds, gives the best benefits to teachers who stay the longest while giving everyone else insufficient gifts. In light of this, prospective and practicing teachers in Arkansas should carefully consider their professional goals and how they will interact with the state’s retirement plan.
Glossary of Financial Terms
The number of years a teacher must work before becoming qualified to receive a pension is known as the vesting period. Although vesting periods vary by state, they typically last five years. Every state allows teachers who leave their positions before they are vested to withdraw their contributions, sometimes with interest. However, only a few conditions permit these workers to receive any employer contributions made on their behalf.
The annual percentage of the teacher’s salary paid to the pension fund.
The proportion of a teacher’s pay that the government, a school district, or both contribute annually to the pension fund.
As a percentage of the average teacher salary, the annual cost of retirement benefits. These costs do not include debt.
The annual cost of a pension fund’s contribution toward any unfunded liabilities is known as the amortization cost, and it may also be considered the pension fund’s debt service expense.
Frequently Asked Questions
Do I have to become a member of ATRS?
Yes. In Arkansas public schools and some state agencies, colleges, and universities, membership is a requirement for employment. You can join a different system, like TIAA-CREF, if you work for specific organizations, colleges, or universities in Arkansas.
What if a member dies?
A close family member or friend should inform ATRS when an ATRS member dies. ATRS can pay out valuable death and survivor benefits thanks to prompt notice. You can contact ATRS by calling (501) 682-1517. An individual who can serve as a contact for ATRS must provide ATRS with their name, address, date of death, and phone number.
Pros and Cons of Arkansas Teacher’s Retirement
- Teachers are provided with a secure, stable retirement income based on their years in the teaching sector.
- The system is well funded, with members contributing to a trust fund that continually earns interest and grows over time.
- Members can choose from several investment options to customize their retirement savings plans.
- Benefits are adjusted annually to account for inflation and changes in the cost of living.
- There are survivor and disability benefits available for qualifying members.
- Retirement plan contributions come directly from teachers’ salaries and may not be adjusted if wages increase.
- Membership organizations assess additional fees and administrative costs, which reduce overall returns on the retirement system.
- Early withdrawal from the plan before retirement age is prohibited or leads to steep penalties, significantly reducing overall returns.
- Qualifying age requirements must be met before receiving full benefits upon retirement.
Final Thoughts – Arkansas Teachers Retirement
Retirement plans should be created with employees, not employers, in mind.
No matter how long they choose to work, Arkansas’ primary objective should be to offer all workers a path to a secure retirement.
Given current turnover patterns, most teachers would fare better in a more portable plan. Arkansas could offer all teachers a straightforward, affordable, and financially sound retirement plan in several ways.