A Look at the Teacher Retirement System (TRS)

Each state has a teacher retirement system that is part of the greater public employee pension. Those who are employed as teachers or working as public employees contribute to this savings fund. This system, similar to the Social Security system, is one in which employees' paychecks fund the pensions. A teacher’s retirement pension is determined by three main factors: age at retirement, the numerical amount of average compensation and the number of years contributed to teaching in his or her state.


The teacher retirement system in California, also known as the California State Teachers Retirement System (Calstrs) is part of one of the biggest pension funds in the world. Manged just like mutual funds they invest large sums of money in different assets. Investment policies with state pension plans are stricter than most other funds and are directed by a bureaucratic system of investment management. These funds must be managed properly because they will eventually be used to pay out pensions.

Age Factor

Normally, teachers would retire at 60, the average age of retirement. Yet, for many, it is desirable have an early retirment. For those teachers who want to retire at age 55 or younger, the pension calculation is factored by the number of months the teacher will be shy of  60 or 55 upon retirement and simply lowers the pension by a factored amount. This age factor effects the pension payment the teacher will receive.

Final Compensation

Another factor to calculate the lump sum pension at retirement is the teacher's salary. If he or she has served the state as a teacher for twenty-five years or longer, this variable would equal the highest annual salary the teacher earned during his or her career.

If the teacher has served fewer than twenty-five years, then the final compensation would be the average of the three consecutive years that paid the highest salary to the teacher.

Number of Years

The other factor to consider for the pension amount is the number of credited service years the employee has completed for the state. These service credits accumulate on a daily basis and also build during sick days and paid leaves or sabbaticals. Each school year counts for one year of service credit.

The 403(b)

Another facet of teacher’s retirement is the 403(b), which is similar to a 401(k) except it features greater benefits. Also known as a (TSA) tax-sheltered annuity, 403(b)s are defined contribution plans that allow teachers and public employees to defer up to $16,500 in salary and wages. This deferral can be as high as $19,500 if the teacher has been employed for fifteen years. (These figures are current in August 2010.)

Note that there is a difference between the pension plan and the 403(b); the fundamental difference is the state pension plan is a defined pension, and the 403(b) is a contribution plan. Remember that a pension is already taken out of your paycheck, and a contribution plan is funded by your contributions.