You are a new faculty member at an Ohio public college or university — congratulations! Obviously, the first thing you have done is joined your local AAUP chapter or union. There is no better way to protect academic freedom, the security of the profession, and your own interests as a faculty member than joining the AAUP.
But among the many pieces of paperwork being put in front of you is one asking you to select your retirement plan with the State Teachers Retirement System (STRS).
STRS Ohio has excellent information on their website about the options available to higher ed faculty for their retirement plan. You can choose from the traditional defined benefit plan, a “401(k)-style” defined contribution plan, or the combined plan. We strongly encourage new faculty members to carefully review the information on the STRS site to decide what plan is best for you.
However, there are some pieces of information that STRS does not mention that we think faculty should know while considering their decision.
Drawbacks of the Defined Benefit Plan
Unless substantive factors impacting the funding of the retirement system change, as a member of the defined benefit plan, you likely will pay more into the system than you will get out of it in retirement. This is because STRS uses all of the employer contribution, plus some of your contribution, to pay down the system’s unfunded liability.
Another thing to note about the defined benefit system is that its members traditionally have received an annual cost of living adjustment (COLA), but the COLA was suspended indefinitely in 2017 to help shore up the funding of the system.
Members of the defined benefit plan continue to have access to healthcare coverage (medical, dental and vision) provided that a member has 15 years of service credit. Beginning August 1, 2023, new retirees will need 20 years of service for eligibility. However, healthcare coverage is not guaranteed and STRS can change program eligibility at any time.
Drawbacks of the Defined Contribution Plan
For those in the defined contribution plan (also called the “Alternative Retirement Plan” or ARP), STRS takes a percentage of your employer contribution and uses it to help pay down the unfunded liability in the defined benefit plan. The percentage is called the “mitigating rate,” as its intended to mitigate the negative impacts to the defined benefit system that occur when someone chooses the defined contribution plan. The current mitigating rate is 4.47%.
ARP members are not eligible for STRS healthcare benefits.
Implications for Social Security Benefits
It also is important to understand that, as an Ohio public employee enrolled into a state retirement system, you are not paying into Social Security and this dramatically reduces your Social Security benefits.
Before 1983, people whose primary job wasn’t covered by Social Security had their Social Security benefits calculated as if they were long-term, low-wage workers. They had the advantage of receiving a Social Security benefit representing a higher percentage of their earnings, plus a pension from a job for which they didn’t pay Social Security taxes. Congress passed the Windfall Elimination Provision to remove that advantage.
Then there is the Government Pension Offset rule that affects workers with government pensions who also receive Social Security spousal or survivor benefits. It reduces the amount of those benefits by two thirds. The rule does not affect your own Social Security benefits (if any) nor your government pension, nor does it reduce the benefits belonging to the spouse. It is important to understand that if your spouse dies before you, you will not get their higher Social Security payment.
You should consult a Social Security advisor to determine exactly how these factors impact your individual circumstance.
We Fight for Good Pensions
The Ohio Conference AAUP advocates for quality pensions for college and university faculty. Market downturns and political pressures have caused benefit reductions and age/service/contribution requirement increases in recent years, but we have helped mitigate decisions that could have had more severe consequences for active educators and retirees. We will continue to fight for good pensions for our members.