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.

 

Jump to the Complete Rankings

The Top 10 / Bottom 10 States by Average Quality of Retirement Benefits for New Teachers

  1. South Carolina (94.2%)
  2. Tennessee (88.2%)
  3. South Dakota (78.7%)
  4. Oregon (78.6%)
  5. Michigan (75.3%)
  6. Washington (74.4%)
  7. Rhode Island (73.9%)
  8. Florida (73.7%)
  9. Hawaii (71.0%)
  10. Virginia (70.7%)

  1. Illinois (49.7%)
  2. Mississippi (49.6%)
  3. Alabama (49.1%)
  4. New Jersey (48.0%)
  5. Nevada (47.1%)
  6. Georgia (46.2%)
  7. Wisconsin (46.1%)
  8. Kentucky (46.1%)
  9. Texas (44.9%)
  10. 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.

Best U.S. States for New Teacher Retirement Benefits front page.

 

Read the Report for Full Details on How We Measured Each Teacher Retirement Plan

 

State Ranking

 

 

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%
2 2 Tennessee Hybrid 88.20% 77.90% 86.70% 100.00%
3 3 South Dakota Hybrid 78.70% 62.30% 75.50% 98.30%
4 4 Oregon Hybrid 78.60% 59.30% 76.60% 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%
11 7 Rhode Island Hybrid 73.90% 60.00% 63.30% 98.30%
13 8 Florida DC Plan (Pension Option Available) 73.70% 66.50% 63.00% 91.80%
14 9 Hawaii Hybrid 71.00% 41.70% 71.50% 100.00%
15 10 Virginia Hybrid 70.70% 51.50% 62.30% 98.30%
Notes:
(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.

 

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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.

Read and Download the Summary Report 

 

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.

 

Read and Download Special Report #1

 

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.

 

Read and Download Special Report #2

 

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.

 

 

Read and Download Special Report #3

 

 

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 Georgia’s Public Pensions

Georgia 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 Georgia, state law allows the legislature to increase employee contributions. In 2011, the city of Atlanta did just that, and some public workers sued the state in an effort to have that part of the law overturned. The court, though, ruled the decision to increase contribution rates did not alter constitutionally-protected pension benefits. The Georgia Legislature in 2014 also increased contribution rates for many employees.

The legal environment is favorable for this shift – meaning that state law and legal precedent allows for changes to this aspect of pension policy.

Although there has been a change in benefit calculations, it’s unclear if there’s a legal environment for future changes for active workers and retirees unless’ there’s statutory language allowing the change.

What’s unclear is whether Georgia can decrease workers’ cost-of-living adjustments or change their vesting periods, 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. 

Download the infographic here

Infographic: State Funded Ratio Histories

Funded Ratio History for U.S. Statewide Pension Funds

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

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.[1] Only 23 of the state laws cover law enforcement employees, such as police officers.[2] 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. 

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Notes:

[1] 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)

[2] 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.

Impacts of Proposed Changes to Teachers Retirement System in Georgia

During last year’s legislative session, Georgia’s House Retirement Committee requested cost estimates of House Bills 662 and 667 (as amended)—both measures propose changes aimed at improving the solvency of the Teachers Retirement System (TRS) of Georgia, a plan currently sitting at only 77 percent funded and holding nearly $22 billion in unfunded promises made to Georgia educators.

Since the fiscal impacts will likely drive the committee’s deliberation on these bills in the upcoming legislative session, understanding the bills’ short-term costs along with their potential long-term benefits is critical to fully evaluating these reforms.

Actuarial modeling performed by Reason Foundation’s Pension Integrity Project—calibrated and confirmed by an internal short-term actuarial study prepared for Georgia’s House Retirement Committee—provides some insight into the long-term impact of the proposed legislative changes.

The two bills address Georgia’s Teachers Retirement System challenges in different ways:

  • HB 662 would lower the assumed rate of return (ARR) for the Teachers’ Retirement System from 7.25 percent to 6.75 percent.
  • HB 667 would require all current legacy unfunded liabilities to be paid off by 2037, and put all new unfunded pension liabilities accrued in any given year on a 15-year amortization (e.g., “pay down”) schedule instead of the current 30 years.
  • Both bills would accelerate the frequency of internal Teachers’ Retirement System actuarial experience studies from the current every five-year review to a look back every three years.

Both changes would result in higher annual contributions into the system in the short-run, but for that cost Georgians would enjoy a more stable retirement system, both in future contributions and overall retirement security for members.

Read the rest of this analysis here.

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This article republishes selections from “The Impacts of Proposed Changes to Georgia’s Teacher Retirement System,” a report by Jen Sidorova for the Reason Foundation, February 18, 2020.

Why Funded Status Matters: Georgia

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 Teachers’ Retirement System of Georgia (TRSGA), Funded Status presents some significant challenges. Here’s why it matters…

How does Georgia keep track of the pension promises made to teachers and educators 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 TRSGA?

This is a measurement of how much money the TRSGA 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 TRSGA 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, TRSGA doesn’t have all of the money it should have. This means there is an “unfunded liability” — commonly known as pension debt. Georgia’s government employers have promised $97 billion in retirement benefits… but TRSGA only has $75 billion in assets. There is $22 billion in pension debt (or unfunded liabilities), and the funded ratio is 77%.

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.

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 for the Georgia pension system?

Pension plans are designed to be 100% funded. That should be the target of Georgia 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 TRSGA 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 80%?

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% funded isn’t good enough. And for two reasons:

  • First, pension debt payments are expensive for Georgia, 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 TRSGA 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 Teachers’ Retirement System of Georgia was fully funded was 2004. That is more than 15 years 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. TRSGA reached this point back in 2012.

Having a funded ratio between 70% and 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.

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Want to read more?

– See Equable’s series on Pension Basics, including an article about Funded Status.