By Perry Tirschwell
This year’s Noble Prize in Economics was awarded to an American Jew, Richard Thaler, for his work on Behavioral Economics, which has huge implications for retirement savings. His research conclusively shows that people who are otherwise make rational and thoughtful choices, make financial decisions that are patently not in their best interest. He believes that governments and employers must create incentives and systems that help people overcome their unwise fiscal inclinations.
People are living longer, but not working longer. During the sixteen years I lived in Florida, I saw 80 year-olds who played tennis weekly, an 85 year-old who actively owned 3 Walgreens, and an 88 year-old who supervised the construction of an 80,000 square foot school building on a daily basis. Due to great strides in medicine, life expectancy has increased to over 80 years old in over a dozen states, and is predicted to approach 100 in years to come.
The United States’ solution to this challenge, Social Security, is in major trouble. People are living longer and the birth rate has shrunk, so much more money is being paid out to retirees than is being paid in by workers. The Congressional Budget Office estimates that benefits will have to be cut by 29% starting in 2030. The only way Congress can prevent this from happening is by raising the retirement age or the amount of FICA taken out of our paychecks, both of which are politically unpopular.
How much does one have to save for retirement? Financial planners recommend that you save 10% to 15% of your income each year for retirement, starting in your 20s. By the time you retire, your savings should amount to 10 to 12 times your income at that time. In other words, you’ll need 70 to 80 percent of your preretirement income after you finish working.
How much are teachers saving now? Pension plans at Modern and Centrist Orthodox, Conservative, Reform and Community Schools vary greatly. Some match teachers’ contributions, though the match has a limit (up to a certain single digit percentage) and it is often not a 1:1 match. Some schools contribute a fixed percentage of each teacher’s salary to their pension (whether or not the teacher contributes), but may or may not allow teachers to put in salary above and beyond that amount.
Though the overwhelming majority of yeshivish and chassidish schools have not had pension plans in the past, an increasing number are starting them. They realize that the accepted psak halacha in the charedi world, to pay an educator a month’s pay for each year that they taught (chodesh l’shana) when they leave the school, is going to be difficult to keep up now that their schools have grown exponentially over the past decades. Though 1/12 (8.3%) is a significant amount, these funds have not had the opportunity to grow with the stock market over the many years of a teacher’s career, and depend on the school’s ability to pay the funds when the teacher retires.
There have a few attempts at tackling this issue. In Chicago, Associated Talmud Torahs requires the local schools to contribute 6%. In Metropolitan New York, UJA Federation and Gruss Life Monument Funds gave schools 2% towards teachers’ pensions, but it was only on salary up to $15,000, and they have not not taken on new participants in many years. At this point, there are frankly too many teachers in New York (let alone nationwide) for a foundation or federation to offer even limited matching funds to teachers.
Orthodox teachers do not have an important benefit which participants in the Conservative Movement’s Joint Retirement Board and the Reform Pension Board have: the ability to take parsonage in retirement. IRS Code 414(e) says that funds that are deposited by an employer into a 403(b)(9) plan (colloquially know as a “Church plan”) are parsonage-eligible. In the Orthodox world, where most of the clergy are teachers and do not have pulpits, there is no central organization of teachers to create such a plan.
Parsonage, which is exempt from Federal, State and City income taxes (which can easily total 25 to 33%), is one of the saving graces of a mechanech. Based on Michael Broyde’s article 10 years ago in TEN DAAT most Orthodox schools have begun granting female limudei kodesh teachers parsonage (though they lack semicha). This practice was endorsed by Torah Umesorah a number of years ago.
Many Christian denominations provide personal-finance advice to their clergy beginning in seminary. At a recent Church Benefits Organization Conference in Indianapolis, I learned that this training often begins in seminary. These churches understand that though a career choice can be rewarding in terms of life mission, it can be very stressful. Pension is just a piece in the puzzle.
I believe that we can create these programs for teachers in Orthodox schools. I have created an organization, amongst whose first projects are a parsonage-enabled pension and financial education for mecahnchim and mechanchot. There are so many people in finance in our world, and we are identifying financial advisors who will donate their time to guide our community’s teachers to financial health in the present and future.
If we as Heads of School care about our teachers (and not just our students), we have to make time schedule financial professional development on the agenda for professional development days and
With the explosion of Jewish day school education (100,000 students in 1980 and 265,000 in 2017, and a concomitant increase in teachers), the community will not be capable of addressing the issue once the baby boom of mechanchim starts retiring. The time to start planning is now.
Rabbi Perry Tirschwell is the Executive Director of the Torah Educators Network
Originally published on the Lookjed list,a project of the Lookstein Center for Jewish Education at Bar Ilan University, posted here with permission.