Higher education professors and staff face a unique set of circumstances for retirement planning. With varying employee pension structures across institutions and evolving benefit programs, understanding your options is essential to building a secure financial future.
However, if thinking about making your own financial decisions or managing your retirement funds is overwhelming, you might consider hiring a financial advisor.
Below I answer five common questions about pension planning for higher education employees and look at national trends in retirement programs.
5 Things to Know About Pension Planning
1. Do professors get pensions? Do staff?
While traditional pensions were once common in higher education, they are becoming less prevalent. Today, public universities are more likely to offer defined benefit plans, especially through state retirement systems.1 In contrast, private universities and colleges tend to favor defined contribution plans, offering flexibility but less predictability.
A pension, or defined benefit (DB) plan, gives a guaranteed monthly income in retirement. This income depends on your years of service and salary history. A defined contribution (DC) plan, such as a 403(b) or a 401(k), is different from a DB plan. In these retirement savings plans, retirement income depends on contributions and how well investments perform.
2. What is the pension plan for the average employee nationally?
Nationally, the landscape is shifting. DC plans are now more common than traditional pensions.
About 91% of public institutions offer DC plans.1 DB plans are managed by 87% of public higher education institutions. Only 12% of private universities offer DB plans. This shift to more DB plans places more responsibility on employees to manage their retirement savings and investment strategies.
Public institutions usually give access to state pension systems. In contrast, private institutions often provide employer-sponsored 403(b) plans that include matching contributions.
3. What is an example of a pension plan?
The Teacher Retirement System of Texas (TRS) offers a traditional defined benefit plan. This plan is for public school, college, and university employees. The system calculates employees’ benefits based on years of service credits and highest salaries, according to Texas law. Employees must contribute a percentage of their eligible compensation to help fund their future retirement benefits.
By contrast, University of Michigan retirement benefits do not include a traditional pension. Instead, the institution has a robust DC retirement program. The Basic Retirement Plan is a combination of 403(b) and 401(a) accounts. After a 12-month waiting period, the employer contribution is 10% of the employee’s salary while the employee contributes 5%.
The University of Michigan retirement plan program has a supplemental DC plan. It also offers a deferred compensation plan for extra savings. You have full ownership of your retirement funds from the day you start employment with immediate vesting.
4. How should employees plan for retirement without a pension?
Without a DB plan, you need to take a more proactive approach with your retirement savings:
- Maximize employer match: Contribute at least enough to receive the full employer match. The program may require a minimum. For example, U-M asks employees to contribute 5%. There may be a minimum unless you have chosen to defer money to another retirement plan. This could be a 401(k) or a 457(b) with a different employer.
- Use supplemental plans: If you have similar supplemental options to U-M with your employer, take advantage.
- Consider Social Security: Understand eligibility and projected benefits, especially if you’ve worked outside academia.
- Build your personal savings: In addition to your employer-sponsored accounts, consider other options like individual retirement accounts (IRAs), brokerage accounts, and health savings accounts (HSAs).
- Hire an independent financial advisor: Find a trusted advisor who can help you create a solid financial plan. The plan should at least include strategies for balancing risk, tax efficiency, and long-term goals.
5. What are the tax and withdrawal considerations?
Retirement accounts come with important tax implications for contributions, distributions, and early withdrawals:
- Pre-tax and Roth contributions: These are taxed differently. Pre-tax contributions reduce your taxable income now. Roth contributions let you take money out tax-free later.
- Required minimum distributions (RMDs): These must start at age 73. This rule applies to most retirement accounts. RMDs can affect your taxable income and tax planning.
- Early withdrawal penalties: If you take money out before age 59½, you may face a 10% penalty. There are some exceptions, such as if you leave your job after age 55.
Understanding these rules can help avoid costly mistakes and optimize retirement income.
Getting help
One resource you should have at hand is a university human resources or benefits office. Understanding your retirement benefits is the first step. The office can also give you plan details, online calculators, and workshops. Independent financial advisors are a resource for personalized guidance on investment options and strategy, tax planning, retirement modeling, and more.
Mercer Advisors has been helping families reach their financial goals for 40 years. As a fiduciary, our firm is legally and ethically bound to act in your best interest.
We can provide you with a selected wealth advisor to fit your needs. This advisor will work with specialists in financial planning, tax planning, estate planning, insurance, and research-based investment management. They will help make sure every part of your financial life is taken care of.
It’s important to understand your pension choices. This applies whether you are just starting your academic career or nearing retirement. With the right strategy and expert support, you can build a retirement plan that reflects your values, goals, and lifestyle. Let’s talk.
1.“Retirement benefits: Access, participation, and take-up rates for defined benefit and defined contribution plans.” U.S. Bureau of Labor Statistics, 2025.
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