How the NBA Pension Works

Life After Retirement: How the NBA Pension Works

Careers of professional athletes rarely end after they turn 40. A typical NBA player will start in their late teens and, barring serious injuries, end their playing career in their mid-thirties. Only a handful of players, which include the likes of Michael Jordan and Vince Carter, retire after 40.

This gives the average athlete roughly a 15 to 20-year window to build their legacy and financially secure themselves and their families.

With the contracts professional athletes get these days, you’d think the financial part would be easy. Millions a year for 15 to 20 years is a hell of a lot of money. But you’re probably all too familiar with the stories of NBA, MLB, or NFL players who go broke after retirement, despite earning the kind of money most of us will never see in our lifetimes.

These stories seem impossible, but they are all too common. It is estimated that 3 out of 5 former NBA players will experience financial difficulties within a few years of ending their careers.

What do professional athletes do even after their retirement age? Some become media analysts or coaches, while others start businesses and investments. And then you have players like Shaquille O’Neal, who did both to build his $400 million net worth. But stories like this are far from the norm. The majority of retired players don’t have a plan and just live a high life.

This is a big problem because the lifestyle of most professional athletes is very expensive. It’s easy to fund it when you have a big paycheck waiting for you every few weeks, but once those checks stop coming, things get ugly quickly.

Alan Iverson, Mark Brunell, Dennis Rodman, and many, many more former star athletes have gone from multimillionaires to bankrupt in a few short years.

Shouldn’t leagues protect their players from financial hardship?

Regardless of your personal opinion on the kind of money professional athletes make, many leagues take steps to protect their players from financial hardship late in life. And some do it better than others. If you’re reading this, you’re probably an NBA fan, and you might be happy to hear that the NBA has some of the best retirement benefits for their players in all of the professional leagues.

And not only that. The NBA takes a proactive approach when it comes to protecting professional basketball players and their finances. One segment that is often underappreciated is the rarely discussed rookie education seminars where NBA rookies get the knowledge they need to thrive in and out of the league. Managing personal finances is a topic that is a big part of those seminars.

Fully guaranteed contacts, a norm in the NBA, also offer players plenty of financial security even when their performance falls short of expectations.

But the area where the NBA shines, while some leagues like the NFL fail miserably, is the retirement benefits. The NBA’s retirement program, NBA pension plan, and benefits are among the most generous and comprehensive in all professional sports.

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What are the benefits for retired NBA players?

Before we answer this question, we need to cover how NBA players prepare for a financially secure retirement while still playing. In addition to the aforementioned preference for guaranteed contracts in the league, the NBA also encourages players to invest in their 401K accounts which matches their contributions up to 140%.

As with the players new to the league, the NBA also offers educational sessions on managing personal finances to players who have just retired. Now let’s get to the real benefits for a retired player. We can break this down into three main categories: college, health care, and retirement.

1. College

Let’s start with college, which may seem a little strange at first, at least until you stop and think about the position these players are in. While most of them spent at least a year in college, very few earned a degree.

The best prospects were either one-and-done players or they skipped college altogether to play in the G-League or even overseas for a year before declaring for the draft. Players who earn a standard 4-year degree are at least 22 years old when they graduate, and teams aren’t particularly excited about rookies at that age because their ceilings aren’t considered that high. This translates into significantly lower career earnings. There are some exceptions to this, like Tim Duncan, but those cases are few and far between.

So you have a lot of guys with very little college education and some leftover money from their playing days that could evaporate in a few years if not managed properly, and no prospects outside of basketball, a sport they no longer don’t play

A college degree goes a long way toward either getting meaningful work or running your own business. That’s exactly why the NBA encourages retired players to go back to school and earn their degrees by reimbursing tuition up to $33,000 a year for eligible former players. It even covers players who want to earn a Master’s degree in their chosen field.

College tuition reimbursement is a fairly recent addition to the benefits portfolio, and not all applications for reimbursement are accepted, but the program is considered a great success so far.

2. Healthcare

Next is health care. Active players have access to some of the best medical professionals in the world, but once they retire, they are on their own. This has been the case with retired NBA players for a very long time.

One of the most high-profile examples was that of Earl Monroe an NBA legend who required more than 40 surgeries after retiring. Both the NBA and the NBPA told him they could not help him with astronomical medical costs. Fortunately, Earl was able to get insurance through the American Federation of Television and Radio Artists. But the only reason he qualified was that he appeared in several commercials during his career.

Earl was lucky in that regard, but many other players were not so lucky. Moses Malone and Darryl Dawkins, two legendary centers, died in 2015 at the ages of 60 and 58 respectively due to health issues. Their deaths revived the topic of health care for retired NBA players, with Monroe being one of the most prominent supporters of the idea.

In 2016, the NBPA and the NBA introduced a plan that guaranteed lifetime health insurance for all players with at least three years of NBA experience. The plan also covered the immediate families of players with 10 or more years of NBA experience. And the health insurance plan not only covers basic health care but visits to mental health specialists are also covered.

The best part is the way years of experience are calculated. To have a year of experience, a player must be under contract for at least one game during the season. They don’t even have to be active for that game. If they are under contract, that counts.

This level of coverage puts the NBA a notch above other professional sports leagues, many of which offer nothing to their former players in terms of health care.

3. Pension plan

Finally, we have the pensions, by far the oldest of all the benefits available to retired NBA players. Established in 1965, these pensions work pretty much as you’d expect. Once they reach the required age, players with enough years of experience in the NBA are eligible to begin receiving monthly pension payments based on the number of months they spent in the NBA.

The amounts have increased several times since they were first established, with the latest increase increasing payments by 50% in 2017. The cost of the pension program, including this latest pension fund increase, is split between the NBA and the NBPA.

The earliest players who can start receiving this benefit is 45 years old, but the payments for players who choose to start receiving pensions will then be reduced because they will receive them for longer on average. If they want to secure the highest possible payouts, players must wait until age 62.

A 10+ year NBA veteran would get about $215k a year if they started receiving payments at age 62. Players with three years of NBA experience will get about $57k annually if they start receiving it at age 62.

Who is behind the benefits?

There are two main groups within NBA circles working to improve benefits for retired players. The first is the NBRPA, the National Basketball Retired Players Association, an organization similar to the NBPA, but made up of retired basketball players. As you’ve probably guessed, their mission is to support retired NBA players in any way they can.

The second group is the National Basketball Players Association (NBPA), which consists of active NBA players. Superstars like Lebron James and Kyrie Irving are or were members of the Executive Committee.

Their reason for championing the cause of retired players is quite simple. It’s only a matter of time before they join the ranks of retired NBA players, and they naturally want to secure themselves the best retirement conditions they can.

But the motives of the NBPA are not purely selfish as the last paragraph might make them out to be. Many of the moves they make to support retired players also stem from genuine respect and appreciation for the generations that came before and helped build the NBA into what it is today.

The existing benefits would be much more difficult to implement if it weren’t for the support of the NBA itself and the ownership structures of the league’s teams. Compared to other pro sports leagues, the NBA is one of the most player-friendly leagues in the US. We can only hope that other major leagues follow the NBA’s lead and bring the benefits to their retired players to a similar level.

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