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.
Infographic: The Protections for Florida’s Public Pensions
Florida teachers’, public safety officers’, and public workers’ pension benefits are entitled to certain protections under state law and affirmed by court rulings. At the same time, the state does have some legal precedent that allows them to change particular aspects of retirement benefits.
In other words, there are parts of public pension benefits that can be changed by future state laws, but only certain parts of those benefits.
Equable Institute partnered with Columbia Law School’s Center for Public Research and Leadership to create infographics that map states’ pension governance. Understanding the legal environment for pension policies can be confusing for both lawmakers and public workers, but illuminating legally permissible policy pathways to improve funding sustainability and ensure adequate retirement income security for states’ workforces is essential.
In the case of Florida, state law allows the legislature to decrease cost-of-living adjustments for public workers. In 2011, they did just that, eliminating COLAs on benefits earned after July 11, 2011. Some public workers sued the state in an effort to have that part of the law overturned, but the Florida Supreme Court ruled the change was legal under the legislature’s authority.
Changes have also been made to employee contribution rates — the Legislature in 2011 changed the retirement system from a non-contributory plan, with a 0% contribution rate, to a contributory plan with a 3% contribution rate.
The legal environment is favorable for these shifts – meaning that state law and legal precedent allows for changes to these aspects of pension policy.
What’s unclear is whether Florida can shift workers’ vesting periods or benefit calculations, because neither of those issues have been brought to court and there is no existing law explicitly prohibiting these changes.
It is important to note that current retirees’ benefits have greater legal protection than those of active employees. Apart from reduced or eliminated COLAs, current retirees’ benefits cannot be taken away or reduced.
Disclaimer: The information here doesn’t constitute legal advice or representation. Equable is not necessarily recommending any of the policies discussed in the infographic. Some may not work for certain states, others may not be desirable policy. Ultimately, any pension policy change should honor promises made to public workers and put them on a path to retirement security, while ensuring sustainable funding measures.
What Both Sides Don’t Understand About Florida’s Retirement System
Florida is in the midst of an interesting debate over its state retirement system’s future, and almost all sides involved are getting something wrong about what’s going on.
Senate Republicans recently passed Senate Bill 84, which would close FRS’s pension benefits to most new hires, other than public safety. Future teachers, state workers, and municipal employees would be enrolled in the state’s Investment Plan, one of two options for FRS members. Because there’s no House companion bill, it’s unlikely the legislation will become law before the Legislature adjourns on April 30.
The bill’s supporters claim this will solve the state’s $43 billion pension funding shortfall, but closing a plan to new members doesn’t make that debt disappear. The Senate should have focused on creating a serious plan to get that pension debt paid down.
Opponents are right that SB84 doesn’t fix what it claims. The Palm Beach Post recently editorialized that Florida’s unfunded liabilities are “very manageable,” given the size of the state’s economy. But they’re also wrong that there’s no problem to be solved.
Florida could be managing its pension debt well, but it hasn’t been. Florida’s unfunded liabilities are only about 3% of state GDP, so the government shouldn’t have a problem with pension debt. And yet as financial markets from 2009-19 improved, FRS’s funding shortfall grew by about $10 billion.
It got worse in the last two years, as Florida had to recognize its long-standing investment assumptions weren’t realistic. The result is that there are billions more in pension debt than FRS previously acknowledged.
Florida’s pension debt problem is a real concern because contribution rates for public employees and government employers have grown just as the debt has. Apathy toward the funding shortfall means less money for school districts and cities, even as they’ve had to manage through the pandemic.
It doesn’t matter if there is enough money in the fund to pay out promised benefits for the next several decades. Unless Florida adopts a serious plan to get the pension debt paid down, costs in the near-term are going to create problems for today’s taxpayers and public workers.
There are multiple ways Florida can do this — here are just a few.
Here’s How Florida Should Improve its Retirement System
In 2011, Florida’s legislative leaders thought Senate Bill 2100 would fix Florida Retirement System’s (FRS) $18 billion funding shortfall. Then-Gov. Rick Scott praised the law as a means to guarantee public workers’ benefits. “I want to be sure that in the state of Florida, we know what our commitments are, and we can live up to our commitments,” Scott said at the time.
But in the years since, FRS’s pension debt has more than doubled and the state’s funding shortfall is $43.3 billion as of the end of fiscal 2020. Legislation aimed at improving FRS is again circulating in Tallahassee — but lawmakers have to make sure they focus on the real problems if they want to avoid repeating mistakes of the past.
There is a way to fix all of FRS’s problems with one large plan that gives a little something to everybody and requires shared sacrifice. No one is going to love the plan, but balancing the interests of all stakeholders involved can often be a sign that it’s the best path forward.
First, though, here are the problems that actually need to be solved.
Florida Retirement System’s Three Main Issues
The principle problem at FRS is the lack of realistic assumptions about the future. Florida actually does a good job of making sure it pays its pension bills on time each year, but the actuarially-recommended contribution rate necessary to ensure FRS’s Pension Plan is appropriately funded have been based on 7% investment return assumptions. That hasn’t happened frequently enough, and it isn’t likely to be the case in the any time soon.
Actually, until two years ago, FRS’s investment assumptions were so unreasonable that the state’s actuaries refused to sign off on them. The state has made a few small steps toward improving this, including a recent decision to lower the investment assumption to 7%, but even that has at best a 50/50 shot. (And when the actuaries for FRS measure the value of benefits, they use an even lower investment forecast of 6.8% long-term average returns.)
Another problem for FRS is there are no built-in tools for pension fund managers to modify costs in case of a crisis. The best funded pension plans in America (see Wisconsin or South Dakota) have “risk-sharing” tools that allow pension boards to modify the value of benefits when investment returns are poor, and share the upside when they’re strong.
Finally, there’s the budgetary pressure created by retirement costs right now. School district managers and local leaders reflected this last year when FRS’s contribution rates went up again, and they shouldn’t expect anything different in the coming years. School districts, which make up nearly half of FRS, and state agencies are scheduled to see their contribution rates increase this coming fiscal year to 10.68% of payroll.
So How Do You Improve the Florida Retirement System?
Start by creating a statutorily-set maximum investment assumption for FRS. The State Board of Administration should still have authority to determine the exact rate, as what is a reasonable assumption can change over time, depending on interest rates and financial market forecasts. But establishing a maximum rate would be the legislature setting a ceiling on the amount of risk it believes is warranted in having investment returns underperform expectations, leading to pension debt. The Michigan Legislature recently made 6% the maximum investment assumption for its new hire pension plan—that would be a good place to start.
The next step is bringing in more money—quickly. Adopting a more realistic investment assumption is going to reset FRS’s books. What looks like a $43 billion funding shortfall based on 6.8% investment returns is really a $69 billion hole, at least assuming a 5.8% average annual investment return. The 10.7% of payroll contribution payments on “regular workers” — ranging from teachers to county clerks — probably need to be more like 17% of payroll. For Miami-Dade County, that increase next year could be as much as $5 million and for Orange County School District, the additional payments might cost nearly $75 million more just for next year, increasing every year for 30 years after that. All of which defeats the point of trying to manage resources effectively through a pandemic.
The most efficient way to avoid this improvement in accounting from further adding to budgetary woes is for Florida to borrow money. And yes, we get that’s not going to be a popular idea. But consider this: If the state raised $50 billion in pension obligation bonds and deposited the money into FRS it would reduce the pension debt levels by the same amount — i.e. the cash infusion would reduce the most realistic estimate of $70 billion down to $20 billion. Still a significant funding shortfall, but a more manageable amount to ask cities, counties, and school districts to help with paying down — none of which had any control over the investment practices that led to the current pension debt mess. The required contribution rates to FRS employers in this scenario could fall below 10% of payroll.
Taking out such a loan and spreading the payments (using the state’s general fund) over several decades would balance the interests of today and tomorrow’s taxpayers, the latter of which is going to get stuck with an even larger bill if the FRS pension debt isn’t dealt with now. And a pension bond (so-called POBs) would be able to take advantage of historically-low interest rates, making the costs of the loan more manageable than perhaps any other time in state history.
Addressing Concerns from All Sides
There are going to be very reasonable concerns raised about this concept, the most common of which is that it is risky to borrow money, even at 2% or 3%, and then invest it. What if the markets crash shortly after depositing the money? That could happen in our uncertain world, though such risks can be mitigated by layering in the money over a period of time so as to not take a hit all at once. More important, the status quo is already a bigger risk — thinking the state could earn 7% over the next several years and decades on average.
Republicans typically don’t like government borrowing, and often with good reason but it’s worth remembering the status quo is definitely not fiscally conservative. A low-interest loan is more like taking on a mortgage; running a pension plan that assumes 7% investment returns is like managing a casino.
And, critically, closing the pension fund to new members won’t fix the funding shortfall. The pension debt will still be there, and people already earning benefits will keep doing so, with FRS trying to get 7% investment returns to fund them, only to turn to the state to ask for higher contribution rates when they can’t get that on average.
In addition to taking out a historically large POB to finance lowering the investment assumption — probably by dropping the FRS inflation assumption, as well as the expectation on “real returns” — the Florida Legislature should then reset the clock on paying down existing unfunded liabilities. In any other circumstance, this “reamortization” wouldn’t be a good idea. It would just be kicking costs down the road to future taxpayers, teachers, and local governments. But in exchange for adopting better funding policies, the state could set a new 25-year schedule for paying down any unfunded liabilities that remain after the POB is deposited.
Improving FRS Also Helps School Districts and Local Governments
The net effect for Orange County School District under this plan would be as much as $20 million in savings for the next fiscal year — depending on the timing of raising money through the bonds and exactly how investment assumptions are adjusted. Local governments participating in FRS could see their contributions reduced, too. If the state legislature wanted to, it could even lower employee contribution rates in lieu of passing all of the savings on to governments and taxpayers. The state could structure the POB to start repaying it annual installments in a few years when there is more certainty around state tax revenues.
It’s not often that the most fiscally responsible plan involves realizing higher debt levels already incurred, then taking out a loan to finance that debt, and reamortizing the remaining debt — but in the case of FRS, that’s exactly what state leaders should do.
Florida May Remove Pension Benefit Choice for State Workers
The Florida Retirement System is in need of big changes—as of 2020 it has nearly $36 billion in unfunded liabilities, partially driven by misjudgments on mortality and retirement rates and investments returns. Florida State Sen. Ray Rodrigues, a Republican, recently introduced a new bill to bring changes to the cash-strapped system, but his legislation misses the mark.
Senate Bill 84 would require all state employees who join the retirement system after July 1, 2022 to be enrolled in a 401(k)-style plan. Right now, workers have the option between a defined benefit plan and an “investment plan,” similar to a 401(k) but without giving individuals the ability to manage their investments. According to WUSF Public Media, Republicans in the Sunshine State have discussed moving away from the traditional defined benefit plan in the past but have run into union opposition.
Florida was one of the first states to offer public employees a choice in retirement benefits, and in the years since a dozen states have followed the Sunshine State’s lead. FRS has serious problems, but benefit choices are not one of them.
State leaders should, instead, focus on paying down the state’s pension debt and improving the existing retirement benefit options. There has been some action, such as decreasing the assumed rate of return to 7.2% and then again to 7% starting this year. Florida is now using an investment assumption below the national average, but even that rate has at best a 50/50 chance of working out. The only way to fix this for the state to use a realistic set of assumptions for its pension fund, increase contributions into FRS, and ensure it is responsibly funded.
The other problem with FRS is the nature of the choices that public employees have. The traditional defined benefit plan fails to provide adequate retirement benefits to public workers because the benefit formula is well below the national average. The average annual pension for FRS members is $23,060, according to a report from Florida’s Department of Management Services.
Those who choose the “investment plan,” a personal retirement account, do have good options for managing their retirement funds. The low fees and professional management of those accounts, though, don’t help much when the contributions flowing into the plan are insufficient to build adequate retirement savings.
Financial experts suggest that people who are enrolled in Social Security should be contributing 10% to 15% into their defined contribution accounts — but Florida employees are enrolled with just 6.3% in contributions.
The Florida Legislature is right to want to focus on improving FRS. But eliminating the choice of a pension plan is the wrong solution for a problem that doesn’t exist. Instead, the legislature should aim to fix the problems that they do have: an underfunded retirement system that needs more funding, less investment risk, and more reasonable assumptions. Equally as importantly, Florida should aim to provide adequate retirement benefits for workers that will offer a real path to retirement security, whether they choose the pension or investment plan.
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.
Florida Retirement System at a Glance
The Florida Retirement System provides benefits to more than 2.5 million active and retired members, according to the state’s Division of Retirement. Here’s everything you need to know about the system and the plans offered by it.
As of 2020, FRS offers two retirement plans: a Guaranteed Income Plan and an Investment Plan, similar to a 401(k) but without giving individuals the ability to manage their investments. Members are allowed to choose which plan they wish to enroll in, and there are some noticeable differences between them.
The vesting period for public workers in the Guaranteed Income Plan is eight years, whereas those in the Investment Plan only have to work for one.
Those in the Investment Plan can also transfer their service to a new plan if they move to another state, but anyone enrolled in the guaranteed income plan cannot.
Public workers enrolled in the Guaranteed Income Plan have to work 24 years before their pension is worth more than what they’ve paid into the plan. Most never make it to that point, though, as 58% of public sector employees will receive no benefits under the plan. As of June 2020, only 25% of Florida’s teachers and municipal workers work long enough for their pension to be worth more than what they’ve paid, and only 7% ever receive a full pension, based on teacher retention assumptions provided by the retirement system.
Roughly 70% of new public sector employees will not vest in FRS and 89% are not expected to work a full career.
Like most states, FRS members are allowed to enroll in Social Security (some states bar public workers from joining Social Security due to Constitutional concerns).
Florida’s Retirement System has a $43.3 billion pension funding shortfall, also called pension debt. Unless serious funding improvements are enacted by the state’s legislature, it will take 26 years before FRS closes its pension debt.
Download the report: Florida Retirement System at a Glance
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.
Florida Funded Status Methodology
The Florida Retirement System (FRS) offers employees the option of two retirement plans. The Investment Plan is an individual retirement account with defined contributions from employees and employers. The Pension Plan provides guaranteed income based on years of service, final average salary, and a 1.6% multiplier for “Regular Class” members (differentiated from “Special Risk” members).
In 2011, the Florida legislature told employees enrolled in the Pension Plan that they would no longer be earning cost-of-living adjustments (COLAs) on pension benefits earned.
- Employees already retired as of June 30, 2011 would continue to receive COLAs.
- Employees who were still working will be eligible to receive a COLA on any benefits earned before of June 30, 2011.
- Any employees hired since July 2011 will not have any COLA on their pension benefits.
Teachers who retired in 2009 were eligible for a COLA. If a retired teacher was receiving $50,000 a year in pension benefits and if their benefits were adjusted each year using the exact inflation amount, then by 2019 the benefits paid should be around $60,065. Inflation averaged 1.85% during the 10-year period from 2010 to 2019.
However, if a teacher hired in the past few years winds up earning a $50,000 pension they will not have that kind of inflation protection.
In the chart shown here the light blue line is a stable $50,000 pension. The orange area shows how that amount would increase each year the inflation pattern matched the exact pattern of the past ten-years. The orange line peaks at just over $60,000.
The Florida Retirement System (FRS) reports that it has $30 billion in unfunded pension liabilities as of June 30, 2019 (the most recent data available). This is the shortfall in the dollars that should be in the pension fund today, earning investment returns, that are necessary to pay out promised benefits.
FRS provides retirement benefits to K–12 teachers, secondary educators, state agency employees, and municipal employees across the state of Florida that do not otherwise have access to a locally provided public retirement plan. However, K–12 employers are roughly 49.2% of the public employers participating in FRS. Therefore, we estimate that $14.7 billion of the FRS shortfall is applicable to Florida teachers.
Back in 2008, Florida Retirement System (FRS) reported that it was a fully funded pension system. Since then, FRS has accumulated $30 billion in unfunded pension liabilities.
According to FRS data, the largest reason for that shortfall is that investment returns have been less than anticipated. Specifically, Florida has not been able to consistently earn the 7.75% investment return it assumed from 2004 to 2014, nor have average returns since then been strong enough to consistently outperform the 7.4% assumed until last year. In total, roughly $17 billion of the shortfall is because of underperforming investments.
FRS provides retirement benefits to K–12 teachers, secondary educators, state agency employees, and municipal employees across the state of Florida that do not otherwise have access to a locally provided public retirement plan. However, K–12 employers are roughly 49.2% of the public employers participating in FRS. Therefore, we estimate that around $8 billion of the underperforming FRS shortfall is applicable to Florida teachers.
The rest of the FRS shortfall has come from missing other assumptions, such as how long people are going to live, insufficient contributions, and related to prudent changes in actuarial methods.
In 2011, the Florida legislature adopted a series of changes to the Florida Retirement System (FRS) designed to improve its funded status. These changes included increasing employee contributions and stopping employees from earning cost-of-living adjustments (COLAs). However, these changes have not led to an improvement in the funded status of FRS.
The year after these changes were implemented, 2012, the unfunded pension liabilities of FRS were around $16 billion. However, by the end of the 2019 fiscal year the unfunded liability had increased to $30 billion.
FRS provides retirement benefits to K–12 teachers, secondary educators, state agency employees, and municipal employees across the state of Florida that do not otherwise have access to a locally provided public retirement plan. However, K–12 employers are roughly 49.2% of the public employers participating in FRS. Therefore, we estimate that the Florida teacher share of the FRS shortfall has grown from around $8 billion to $15 billion.
The Florida Retirement System (FRS) offers employees the option of two retirement plans. The Investment Plan is an individual retirement account with defined contributions from employees and employers. The Pension Plan provides guaranteed income based on years of service, final average salary, and a 1.6% multiplier for “Regular Class” members (differentiated from “Special Risk” members).
For individuals participating in the Investment Plan, they contribute 3% of salary into their account, and their employer contributes 3.3%. The total 6.3% of salary is not sufficient savings for building a secure retirement, according to all financial expert recommendations.
There are debates among financial experts about the minimum contributions necessary to assure a secure retirement, but they all tend to range from between 10% to 15% of salary. The FRS Investment Plan has the potential to provide sufficient retirement savings, but only if the total contributions — no matter whether from employees or employers — is at least between 10% to 15%.
Why Funded Status Matters: Florida
Your pension is your monthly slice of the pie for life – and Funded Status is the recipe for making sure that you get every slice promised. But for the Florida Retirement System (FRS), Funded Status presents some significant challenges. Here’s why it matters…
How does Florida keep track of the pension promises made to teachers and other public workers all across the state? Keeping track of the ability to make pension payments to current and future retirees starts with an important measurement: funded status.
What is the ‘Funded Status’ of FRS?
This is a measurement of how much money the FRS pension fund should have.
- Pension funds have assets — contributions paid in by government employers and employees, plus investment returns made by putting those contributions into stocks, bonds, and other ways of making money.
- Pension funds also have promises — commitments made to current retirees, and current workers who will retire in the future.
The “funded ratio” of FRS is the percentage of assets in the fund, relative to the promises made. If a pension plan is 100% funded, that means it has all of the money it needs to pay current retirees, plus make investments that will produce future investment returns.
Unfortunately, FRS doesn’t have all of the money it should have. This means there is an “unfunded liability” — commonly known as pension debt. This is debt owed by Florida governments to FRS, which will need the money to pay out future benefits to public workers. Florida’s government employers have promised $191 billion in retirement benefits… but FRS only has $161 billion in assets. There is a $30 billion shortfall (i.e. $30 billion in pension debt, or unfunded liabilities), and the funded ratio is 84%.
What is the ‘Funded Status’ for Teachers in FRS?
There are hundreds of state agencies, municipal governments, and public schools that are participating employers within FRS. The employers serving K-12 students across Florida comprise around 49% of all FRS public employers. A reasonable estimate is that around $14.7 billion of the FRS shortfall is applicable to teachers, but the ratio of assets to promised benefits is the same at 84%.
Why is it important?
Funded status helps to keep track of whether a pension fund is going to be able to pay out all of the benefits promised by a state or local government.
It is helpful to know what percentage of funding a pension plan has, because when that number starts to drop below 100%, it could be a warning sign of trouble. It is also helpful to know what the funding shortfall is as a dollar amount — because this lets us know how much needs to be paid into the pension fund at some point, to be sure benefits can be paid.
What problems could poor funded status create?
Poor funded status can lead to public pension plans freezing Cost of Living Adjustments (COLAs). This means your pension stays the same, while inflation makes it more expensive to buy the things you need. And since 2011, working teachers are not earning COLAs on their future pension benefits — it could be that Florida moves to freeze COLAs for current retirees too if the funded status does not improve.
You may also see an increase in your property taxes; as pension debt rises, taxes on all property owners often increase. Whether you’re working or retired, this means less money for everyday living.
Other public programs can also suffer. Funding for roads, schools, parks, municipal programs, and more are being cut as pension debt takes a bigger bite from public budgets.
What is a healthy funded status?
Pension plans are designed to be 100% funded. That should be the target of Florida or any other state with a pension plan.
Why? The whole point of setting up a pension fund in the first place is to put money aside (contributions from governments and employees as participants) and invest that money, using the investment returns to help pay future benefits. In this way, governments are “pre-funding” the benefits they’ve promised.
So when FRS has less than 100% of the money needed — like right now — there isn’t enough money from the pension fund in the financial markets to earn investment returns.
Is it okay if the funded status is just 84%?
Not really. For a year or two, it isn’t a problem if your state’s pension plan isn’t 100% funded. But low funded status shouldn’t be permanent.
The value of pension funds can fluctuate from year to year. Even after a big financial crash, markets tend to bounce back. In fact, some of the best investment returns for pension funds happened in the years right after the Financial Crisis of 2008-09. So it’s reasonable that funded status will fluctuate over time.
But being continuously around 80% to 90% funded isn’t good enough. And for two reasons:
- First, pension debt payments are expensive for Florida, and are taking money away from investing in roads, parks, or education. For example, last year school districts and the state spent $1.3 billion on pension debt payments, accounting to $711 per student. This is bad just for one year… but doing it every year can create really terrible outcomes for society.
- Second, the assets of a pension fund are not only to pay current retirees. They are also supposed to be invested to earn returns that will be used to pay future FRS retiree benefits. Staying at a poor funded status forever means keeping future retirees constantly at risk of not getting all promised benefits.
When should I be worried about the funded status in my state?
Right now. The last time the Florida Retirement System was fully funded was 2008. That is more than a decade of persistent pension debt.
Once the funded ratio of a pension fund drops below 90% for two or three years in a row, that is a warning sign that something isn’t exactly right. FRS reached this point back in 2009.
Having a funded ratio below 90% for several years in a row means that unfunded liabilities are persisting. And just like carrying credit card debt for a long-time, the longer that a state takes to pay off its pension debt, the more expensive it will be in the long-run.
Want to read more?
– See Equable’s series on Pension Basics, including an article about Funded Status.
– Take a look at Bellwether Education Partner’s analysis of Florida teacher retirement benefits.
– Check out Pension Integrity Project’s review of FRS solvency.