Last Updated on March 2, 2023 by George
Disclaimer: If you use products or services based on our expert recommendations, we may receive a commission from the links in this post. Please take some time to read our Advertising Disclosure for more information.
The teacher retirement plan in Montana offers stability and security to those who work in the educational field. Teachers can qualify for full benefits at age 55 with 25 years of experience or at 60 with just five years of experience after five years of service. Teachers are then eligible for a pension. Additionally, they can take early retirement if they have at least five years of experience. Teachers can only take pension benefits if they move or cross state lines because pensions are portable. The program also rewards long-term employees, leaving others with inadequate benefits compared to those who have worked for a single system their entire careers.
The Montana Teachers’ Retirement System (TRS), established in 1937, provides defined benefit (DB) pension benefits to its 13,363 retirees and beneficiaries and 44,473 active public school employees.
Key Facts
- Montana workers contribute 7.15% of their pay to TRS,
- while employers contribute 9.85%.
- For every dollar Montana invests in TRS, taxpayers enjoy a total return of $5.75 in state economic activity.
A defined benefit (DB) pension is a type of retirement plan that typically provides a retiree with a fixed, modest monthly income for life. This type of pension often takes the form of a shared financing model, where both employers and employees make gradual contributions. In private-sector pensions, however, employer contributions are the sole funding source. Benefits usually depend on how many years of service an employee accumulates and their income after their career. Employer contributions, employee contributions, and investment gains fund these benefits. These contributions are typically pooled together and overseen by trustee asset managers. Studies have found that individuals who possess a defined benefit (DB) pension in combination with Social Security and individual savings are more likely to achieve financial security during retirement.
How Do Teacher Pensions Work in Montana?
Teachers in Montana are covered by the Montana Teachers’ Retirement System, which also serves all other state employees. The plan was established in 1937 and followed a basic structure typical of other states. Unlike other retirement plans, the value of the pension at retirement is not based on contributions made by the teacher or their employer. Instead, a formula considering years of experience and ultimate compensation is used to determine it. Furthermore, depending on when they were hired, most states have implemented various benefit categories for teachers, including Montana. Here are the tiers available in Louisiana.
How are Teacher Pensions Calculated in Montana?
The formula used to determine pension wealth for Montana teachers is illustrated in the graph below. It’s important to note that the state uses an individual’s average top five years of pay to calculate their final salary. A teacher with a final average income of $70,000 after working for 25 years will be eligible for an annual pension payment equal to 41.75 percent of their final salary.
Calculating Teacher Pension Wealth in Montana
1.67% Multiplier X Avg. highest five consecutive years of salary X Years of service
Who Qualifies for a Teacher Pension in Montana?
To be eligible for a pension, Montana teachers must work for at least five years. Once they’ve reached this vesting term, they are qualified to receive benefits upon reaching the state retirement age. Depending on their service time and age, Montana has put in place particular time frames when educators can retire with benefits. Newly hired instructors may choose to do so with full benefits at either 55 years old after 25 years of employment or 60 years after at least five years. Additionally, those 55 and above are permitted to retire early if they have accumulated five years of service or more; however, there is a decrease in their benefits package depending on how many years of experience they have and how soon they retire.
How Much Does Montana’s Teacher Pension Plan Cost?
Montana teachers must contribute 8.15 percent of their salaries and a matching contribution from their employers to the pension system. In 2018, the state contributed 11.46 percent, and all teachers contributed 8.15 percent for a total investment of 19.61 percent of teacher salaries. However, only 1.81 percent of that amount is matched by the state towards benefits; the remaining 9.65 percent is used to reduce pension debt.
In addition, Montana does not offer benefit portability for teachers, meaning if a teacher leaves the MTRS system or moves to another state, they cannot transfer their benefits. They will have to start over in another retirement program with lower savings than if they stayed in one system throughout their teaching career. It’s important for prospective and practicing Montana teachers to fully understand the retirement plan to make informed decisions about their future earning potential and save adequately for retirement while working in Montana’s education system.
Glossary of Financial Terms
Vesting period
The minimum number of years a teacher must work to be qualified for a pension. Although vesting periods vary by state, they typically last five years. Every state allows teachers who quit their positions before they are vested to withdraw their contributions, sometimes with interest. However, just a few jurisdictions permit these workers to receive any employer contributions made on their behalf.
Employee contribution
The proportion of a teacher’s annual income paid to the pension fund.
Employer contribution
The proportion of a teacher’s annual income that the state, a school district, or both contribute to the pension fund.
Average cost
The annual retirement benefit expense is expressed as a proportion of teacher pay, and these costs do not include debt.
Amortization cost
A pension fund’s annual payment toward any unfunded liabilities. This may also be considered the pension fund’s debt service expense.
Frequently Asked Questions
What to ask about retiring as a teacher?
- How good is my pension account?
- Can I upgrade my pension plan?
- What does health insurance look like for retirees?
- What are my goals for retirement?
How many years do you have to teach in Montana to retire?
In Montana, newly hired teachers can retire with full benefits at age 55 after 25 years of service or at 60 after at least five years on the job. Montana also permits those aged 55 or older to retire early if they have accumulated five years of service.
What are good retirement questions?
You can answer these queries or consult a financial expert to make projections about your retirement. Questions you might have include:
- How much cash will I need for retirement?
- Do I need to file for Social Security?
- What would retirement healthcare cost? and
- How should I use my retirement funds?
Pros & Cons
Pros                                                    
The Montana Teacher Retirement System (MTRS) offers teachers benefits and opportunities to save for retirement. However, because it is a state-funded program, there are pros and cons to enrolling.
Pros:
- Educators in Montana can receive a pension upon meeting the vesting term of 5 years and reaching the state retirement age.
- Employers and employees must contribute to the system, meaning all teachers can benefit from their employer’s contributions and their own.
- For those 55 and above, there is an opportunity to retire early if they have accumulated five years or more of service, with a decreased benefit package depending on experience and time of retirement.
Cons                                                    
Cons:
- Benefit portability is not available in Montana, meaning if a teacher leaves their job or moves across state lines, they cannot take any benefits to another system.
- The state only matches 1.81 percent of teacher salary contributions, while much of the other contributes to reducing pension debt rather than increasing benefits.
- Only teachers who remain in the system the longest will receive full benefits, leaving others with lower payouts than they would otherwise get if they remained in one system throughout their careers.
Final Thought – Montana Teacher Retirement System
The Montana Teacher Retirement System is a valuable program allowing teachers to save retirement money. However, when making decisions about their future, prospective and practicing teachers must consider how their career goals align with the benefits provided by this state-funded pension system.
Related Post: