The Best U.S. States for New Teacher Retirement Benefits
There are lots of factors that new, prospective K–12 teachers have to consider when entering the education workforce. People typically pay the most attention to things like salary, location, and health insurance benefits, but what U.S. States are the best for new teachers looking for secure retirement?
Retirement benefits are a unique form of compensation in that they are deferred compensation. It is straightforward to compare the salaries offered to teach in one county versus another, or even to look at the health insurance benefits (medical plus dental? plus vision?) offered by one school district versus another. But comparing retirement plans on a state-by-state basis is a more difficult because there is no intuitive way to understand the value of one pension plan versus another, or whether a hybrid plan or defined contribution (DC) plan might be more valuable.
This article provides a ranking of states based on the quality of retirement benefits that they offer to new teachers entering the workforce in 2022-23, first published in Special Report #3 of the Retirement Security Report Teacher Edition.
The Top 10 / Bottom 10 States by Average Quality of Retirement Benefits for New Teachers
- South Carolina (94.2%)
- Tennessee (88.2%)
- South Dakota (78.7%)
- Oregon (78.6%)
- Michigan (75.3%)
- Washington (74.4%)
- Rhode Island (73.9%)
- Florida (73.7%)
- Hawaii (71.0%)
- Virginia (70.7%)
- Illinois (49.7%)
- Mississippi (49.6%)
- Alabama (49.1%)
- New Jersey (48.0%)
- Nevada (47.1%)
- Georgia (46.2%)
- Wisconsin (46.1%)
- Kentucky (46.1%)
- Texas (44.9%)
- Louisiana (33.8%)
The score shown for each state is the percentage of available Retirement Benefits Score points that the retirement system averages overall for all open retirement plans available to public school teachers for the 2022-23 school year.
How States are Ranked
Our approach to ranking states is to grade each retirement plan offered to public school teachers based on the quality of benefits offered to three groups of people: those who are only going to teach for 10-years or less (“short-term” teachers), those who are going to spend 10-20 years in the classroom (“medium-term” teachers), and those who will teach in K–12 education for their entire lives (“full career” teachers).
This ranking includes all types of retirement plans for teachers, including “pension” plans, “defined contribution” plans, “guaranteed return” (or “cash balance”) plans, and “hybrid” plans that blend together various elements from the first three plan types.
While most teachers do not make their job decisions based on the retirement benefits being offered, today’s workforce is highly mobile and very much in flux. It is easily conceivable that someone who is getting their teaching certificate or finishing up an education program or considering changing professions might have some flexibility in where they want to go to work.
States Ranked by Best Retirement Plan Available to New Public School Teachers
|wdt_ID||Rank||State||Best Plan Available (Design Type)||Overall Retirement Benefits Score||"Short-Term" Teacher Score||"Medium-Term" Teacher Score||"Full Career" Teacher Score|
|1||1||South Carolina||DC Plan (Pension Option Available)||94.20%||86.20%||96.40%||100.00%|
|7||5||Michigan||DC Plan (Hybrid Option Available)||75.30%||58.30%||67.70%||100.00%|
|10||6||Washington||Pension (Hybrid Option Available)||74.40%||52.20%||72.60%||100.00%|
|13||8||Florida||DC Plan (Pension Option Available)||73.70%||66.50%||63.00%||91.80%|
(1) “Pension” means a defined benefit pension plan, “DC plan” means a defined contribution plan, “GR plan” means guaranteed return plan (or cash balance plan), and “Hybrid” means a hybrid plan that combines elements of pension, DC, and/or GR plans.
(2) Different retirement plan designs (pension, DC, guaranteed return, hybrid) have different available Retirement Benefits Score points, given the underlying variance in the kind of provisions offered by each plan design. The percentages shown are the percentage of available Retirement Benefit Score points.
(3) The following states offer multiple plans to teachers who must make a choice which they want to join: Florida, Indiana, Michigan, Ohio, Pennsylvania, South Carolina, Utah, Washington.
(4) The following states show average scores for a statewide teacher plan and separately managed municipal teacher plan: Illinois, Minnesota, Missouri, New York
(5) Colorado has separate pension plans for Denver Public Schools and all other state school districts, but both plans are managed by the same state administrative organization.
(6) Nevada has two pension plan designs with different contribution rate structures. In most school districts the employer decides which to offer, but in some places employees have a choice.
(7) Rhode Island has different hybrid plan tiers of benefits based primarily on whether or not an individual is enrolled in Social Security.
(8) Texas has two pension plan designs that new members can join that differ slightly in their provisions based on the previous state employment history of the individual.
What All of This Data Means for Teachers
Many of the lowest scoring retirement plans for teachers are those that were created in the years following the Great Recession.
While some states replaced their pension plans with lower-risk alternative plan designs that offered comparable benefits, others simply reduced the value of pension benefits offered to new teachers. The net result is that the value of pension benefits today are roughly $100,000 less than they were in 2005, a 13% decline over the past two decades.
Teachers who were already hired before states began creating new tiers of benefits with less value will still retire with the benefits they were promised. This means the benefit value reduction is going to be felt primarily by new generations of teachers.
All of the new pension plans and benefit tiers were put in place as part of a wave of legislation to reduce costs and the risks to taxpayers from future investment shortfalls. These goals are understandable in the context of economic recession and financial volatility. And in the years since as teacher pension plans have accumulated over $600 billion in pension debt — i.e., unfunded liabilities — the costs of paying this down have become an acute burden for states and school districts.
But the state legislatures who chose to continue offering pension benefits only through a lower valued tier of benefits have effectively shifted the costs of their legacy retirement plans on to educators. By cutting the benefit values for future teachers, states are forcing those individuals to find additional ways to use their salaries to save for retirement independent of the state retirement system. The best U.S. States for new teachers do not put teachers in this position.
Details & Methodology Notes
Our ranking approach starts by grading each teacher retirement plan using Retirement Security Report methodology. This assigns a Retirement Benefits Score to each plan based on how well they are serving short-term teachers, medium-term teachers, and full career teachers. We blend those scores together to get an average overall score for each retirement plan. And that is what is used to determine the score for each state.
If a state only has one retirement plan that is open to enrolling new teachers, then the score for that retirement plan is the score for that state. If a state has multiple retirement plans available for new teachers to join, then we calculate the average score of those plans, and that is the score for the state.
Using this approach, the best state in the country for new teacher retirement benefits is Tennessee. Their hybrid plan for teachers serves all members well, including earning 100% of available Retirement Benefits Score points for full career teachers and 77.9% of available points for short-term teachers.
For states like Tennessee, South Dakota, or Oregon, the score for the one hybrid plan that they have available for new teacher is how we’ve ranked the state itself. For states like Pennsylvania and Michigan, each of which offers the choice of a hybrid retirement plan or defined contribution plan, we’ve averaged the scores for those plans to come up with a ranking for the state itself.
An example of how this works is South Carolina. They offer teachers the choice of a pension plan or defined contribution plan. The defined contribution plan on its own is actually the highest scoring teacher retirement plan in the country, but the South Carolina pension plan does not get very good scores. The average of those two puts South Carolina in fourth among the states with 78% of available points scored — 10% percentage points below Tennessee.
In cases where a state has a plan for teachers that is intended to be supplemental to primary retirement benefits or is only offered to part-time teachers, we do not include that in the state’s average. We also do not include retirement plans that are only offered to non-certified public school employees or plans exclusively for higher education employees.
Introducing the Retirement Security Report Teacher Edition
On June 28th, Equable Institute issued the Retirement Security Report Teacher Edition (2022). The report builds on The Retirement Security Report (RSR) initiative launched last year that evaluated the quality of retirement benefits offered to public workers nationwide using Equable’s Retirement Benefits Score methodology for all 335 statewide retirement plans currently open to new hires at that time.
The Teacher Edition of the report is an in-depth look at the 316 retirement plans currently offered to teachers and non-instructional staff in the U.S., including those offered to new hires and legacy plans with active enrollees – adding more than 200 plans to both our benefits database and interactive retirement security scorecards. The resulting omnibus analysis is comprised of four papers – a summary report and 3 special reports – that illuminate the state of teacher retirement benefits today.
Summary Report: “The National Landscape of Teacher Retirement Benefit Security”
The National Landscape of Teacher Retirement Benefit Security provides an overvie of teacher retirement benefits in America. The paper highlights the trends in the value of pension benefits, evaluates how well teachers are being served by the retirement plans offered to them based on plan type, and other key trends and analysis that are further expanded upon in the three special reports.
Special Report #1: “The Fading Value of Teacher Retirement Benefits in America”
Special Report #1 looks at historical trends in the value of teacher retirement benefits. Analyzing lifetime benefit values going back to 1965, the report shows teachers today enrolled in a pension will earn 13% less in retirement than a teacher hired before the Great Recession. The report also evaluates similar trends in value for other retirement plan types.
Special Report #2: “The Best U.S. States for New Teacher Retirement Benefits”
Special Report #2 ranks states by the quality of their retirement benefits offered to new teachers using Equable’s Retirement Benefits Score methodology. The report offers two rankings: The first based on the best-scoring plan offered to teachers in each state and the second based on the average score for all plans.
Special Report #3: “Important Elements of Quality Teacher Retirement Plans”
Special Report #3 analyzes the design elements of the top-scoring plans in the Retirement Security database. The paper illuminates the best practice in plan design that help to ensure retirement income security for teachers.
In the coming days and weeks, we will be highlighting key findings and more data from the Retirement Security Report Teacher Edition. Visit equable.org/rsr to read more RSR content and learn more about the initiative.
About the Retirement Security Report
The RSR is a universe of in-depth research, interactive tools, policy scores and other resources to shed light on the quality and value of retirement benefits for all public workers. All RSR projects are based on data from our comprehensive benefit database of retirement plans offered to public workers and use an open-source scoring methodology that accounts for three primary criteria: Eligibility, Income Adequacy (based on a 70% pre-retirement income replacement rate), and Flexibility & Mobility.
CalPERS Strong Investment News Triggers Lower Assumed Rate of Return
The California Public Employees’ Retirement System recently announced good news—it is lowering their investment assumption from 7% to 6.8%. Oh, and the nation’s largest pension fund also returned a strong 21.3% on investments for their most recent fiscal year.
The reduction in investment assumption was actually triggered by the investment returns. CalPERS in 2015 enacted a policy that stated its assumed rate of return would reduce by a certain amount each year, but only if its investment returns reached a certain amount annually. Ultimately, the pension fund hopes to get to a 6.5% assumed rate of return.
There is no doubt this year’s CalPERS return is a positive for the pension fund. Financial markets around the world were really strong between July of 2020 and June 2021, and CalPERS took advantage of that. But the more important piece of news from last week is about how CalPERS is using this return as leverage to continue adopting more reasonable long-term assumptions.
One year of good returns should not be treated as evidence CalPERS fixed its problems. Even their board members have said this.
At the same time, one year of bad returns — like last year’s 4.7% — doesn’t mean the sky is falling. CalPERS, as a long-term investor, cares about its average return relative to assumptions. And what matters the most is making sure that the pension fund has the right expectations about the future.
Over the past few years, CalPERS has gradually been reducing its investment assumptions because there is a consensus that investment returns in the future will not be as good as the past. Over the past 30 years CalPERS has averaged around 8%; but going forward its investment advisors have estimated average returns will be closer to a 6% return.
So the step from a 7% assumption about future returns to a 6.8% return is just that, a step. It is a positive step, but also doesn’t mean CalPERS work on adapting to the 21st century is done.
Infographic: State Funded Ratio Histories
Download this infographic here.
These graphics originally appeared in the December Update to State of Pensions 2020. Read the report at Equable.org/stateofpensions.
Individual state graphics are available for download here.
Understanding the State of Teacher Pension Funding in 2020
Teachers and educators make up the largest group of public employees in the country. Roughly half of the pension promises made by states and cities have been made to public school employees. But roughly half of the pension debt in America is held by teacher pension plans too. Here is a snapshot of the state of teacher pension funding in 2020.
Which States Have Laws that Allow for Police Pension Forfeiture?
If a police officer commits a crime in the course of performing their duties, they may be at risk of losing their pension. But only in certain states.
Most states have some kind of “pension forfeiture” laws on the books. These laws usually are related to public employees that are either convicted of, or plead no contest to, a felony or unlawful killing. Only 23 of the state laws cover law enforcement employees, such as police officers. There are three states that might cover police, depending on how they’re interpreted, and 24 states without laws covering police.
The details about what kind of crimes will lead to pension being stripped from a police officer vary from state to state. Usually the forfeiture law is limited to on-duty offenses, other times it is not. A few states allow for pension benefit reductions rather than taking the whole pension away. And the process for determining whether a pension is to be forfeited isn’t always the same: some states automatically strip pensions from individuals under these circumstances, other states have judges order the pension taken away or require pension boards to hold proceeding to consider taking the right to a pension away.
For complete details, please review the relevant statutes in your state.
If you are interested in learning more about the benefits offered to public safety officers in your state, check out the Retirement Security Report.
Disclaimer: This article and infographic is not intended as legal advice or formal legal analysis.
 There are seven states with pension forfeiture laws that do not apply to police officers, including: Delaware and Minnesota (laws only applies to surviving beneficiaries who commit an unlawful killing, not active members); Indiana and South Carolina (laws allows for pension benefits to be used as restitution for theft or embezzlement of public property, but does not otherwise require forfeiture for committing a crime); New Mexico and North Carolina (laws allow for pension forfeiture of elected official benefits only); New York (a 2018 law only allows pension forfeiture for elected officials, judges, and gubernatorial appointees)
 There are three states with laws that could be interpreted as covering police officers in addition to the 24 listed on the map above. Texas has a pension forfeiture law that only applies to the state Employees’ Retirement System, which does include some state police officers, but does not cover the vast majority of police around the state. Arkansas and Montana have laws that strip the pension of a public employee if they commit an unlawful killing, but only if the person they kill is another public employee.
LA Considering a Pension Commission to Review Its $9 Billion Shortfall
The City’s Annual Required Contributions to its two pension funds have increased 56% ($475 million) since Eric Garcetti was elected mayor, from $848 million to $1.32 billion for the upcoming fiscal year beginning July 1, 2020. […]
Yet we know very little about the City’s two pension plans, the Los Angeles City Employees’ Retirement System (“LACERS”) and the Los Angeles Fire and Police Pensions (“LAFPP”). This is because Mayor Eric Garcetti and former City Council President Herb Wesson buried the recommendation of the LA 2020 Commission to establish an independent pension commission to review and analyze the two pension plans and develop recommendations to make the plans sustainable. This was due to the opposition to increased transparency by the campaign funding leaders of the City’s public sector unions.
However, on Monday, April 27, Mayor Garcetti told Larry Mantle, the host of Air Talk on KPCC (89.3 FM), that he is considering the establishment of a pension commission… The unfunded pension liability of almost $9 billion is the City’s largest financial obligation. It is the equivalent of high cost debt. The Annual Required Contributions are eating the City’s lunch, becoming an increasing portion of its budget. We need transparency and solutions. We cannot afford to continue to kick the pension plan obligations down our lunar cratered streets. We need an independent pension commission to kickstart pension reform.”
Read the rest of the article at City Watch.
This article republishes selections from “LA’s Pension Contributions are Ballooning: The Public Has a Right to Know” an article by Jack Humphreville for City Watch, 4/27/2020.
Riverside County May Borrow $727M via Bonds to Lower Pension Debt
Riverside County could issue almost $730 million in bonds to whittle down its $3.5 billion pension debt, a move meant to save money while tackling a massive, growing and chronic expense that looms over county finances.
The Board of Supervisors last week voted 3-2 go to the bond market to pay 20% of the county’s unfunded pension liability. The Tuesday, March 17, vote doesn’t mean the county will sell bonds right away, but it sets the wheels in motion to get to that point.
Even before the novel coronavirus pandemic upended the global economy and everyday life, county government faced another challenge – how to address a $3.5 billion debt that threatens to grow and consume already scarce dollars for police, fire protection, and other public services for the county’s 2.3 million residents.
That debt, and what the county pays to the California Public Employees’ Retirement System, or CalPERS, was projected to grow through 2030 – and that was before COVID-19 sent markets into a free fall.
Read the whole article in The Press-Enterprise.
This article quotes selections from “Riverside County could borrow $727M via bonds to cut pension debt,” by Jeff Horseman in The Press-Enterprise, 3/24/2020.
Redwood City Using Surplus to Reduce Pension Funding Shortfall Faster
Paying $3 million to reduce pension liability is among spending recommendations that follow higher than expected revenue for Redwood City, which has an unfunded pension liability of $264.5 million.
“Our commitment is that when we have a surplus,” said Vice Mayor Shelly Masur, “a portion of that will go toward paying down our pension liabilities.”
Masur said a range of issues contribute to the liability — including actions by state government. “During the recession, the state pulled back on its contributions so the costs were shifted to local governments,” she said.
“During the recession, the state pulled back on its contributions so the costs were shifted to local governments,” she said.
The recommendation to spend $3 million toward pension liability is part of a mid-year budget report that goes before Redwood City Council members Monday.
Read the rest of the article in The Daily Journal.
This article republishes selections from “Redwood City eyes $3M to cut pension liability,” an article by Ryan McCarthy for The Daily Journal, 2/22/2020.
California Supreme Court To Decide On The “California Rule”
The California Supreme Court will soon schedule oral argument in controversial cases involving legislative pension reform impacting the pension benefits of state and local government employees. By the close of 2020, the Supreme Court will issue a decision that may very well strike at the heart of the so-called “California Rule.”
For nearly 60 years, since the California Supreme Court issued its decision in Allen v. City of Long Beach in 1955, the “California Rule” remained a mainstay of California common law. The California Rule is the general notion that a public employee is vested in the pension benefit promised at the start of employment such that those benefits cannot be reduced even for prospective service except under exceptionally limited circumstances. To be legally permissible under the California Rule, the modification of a pension benefit “must bear some material relation to the theory of a pension system and its successful operation” and any modification that results in disadvantages to employees must be accompanied by comparable new advantages.
Among the provisions enacted with the Public Employee Pension Reform Act of 2013 (PEPRA) were changes to the definitions of “compensation earnable” or “pensionable compensation.” These two terms refer to the items of employee compensation that may be included in the calculation of the employee’s ultimate pension benefit. For example, compensation for special assignments, education, or performance of extra duties. The PEPRA revised a statute under the County Employees Retirement Law of 1937 (CERL) such that particular items of compensation that were formerly included in “compensation earnable,” are now expressly excluded for employees hired prior to PEPRA’s effective date (“Legacy Members”). Soon after, Legacy Members challenged what they believed to be PEPRA’s violation of the California Rule.
Read the whole article on LexBlog.
This article quotes selections from “California Supreme Court May Soon Decide the Fate Of The “California Rule”” by Brett A. Overby in LexBlog.
Many California Cities Project Higher Pension Bills in Upcoming Years
Cities across California are beginning to draft their fiscal blueprints for the next year — and for many of them, that means paying more to the California Public Employees’ Retirement System.
The percentage of payroll that the average police and fire department shells out for pension costs is expected to reach 56% by 2024, with the number of local governments paying more than 70% doubling to 59 by then. That means that for every dollar those cities spend on salaries, they’ll need to contribute at least another 70 cents to Calpers, the largest public pension in the U.S.
Those contributions are rising in part because of decisions by the pension fund’s board to absorb market losses faster and to lower the assumed investment return, which requires larger contributions from California and its municipalities to make up for the smaller projected gains. If the fund misses that 7% annual investment target, as it did for the year that ended in June and may continue to miss over the next decade, as Chief Investment Officer Ben Meng warned, that means even higher amounts from taxpayers.
“Calpers is really putting additional pressure on the cities to achieve their goal of obtaining a much higher level of funding,” said Howard Cure, head of municipal research at Evercore Wealth Management. “It’s the right, prudent thing to do, but it’s a burden on these cities.”
Read the whole article in Bloomberg.
This article quotes selections from “For Many California Cities, New Year Brings Higher Pension Bills” by Romy Varghese in Bloomberg.