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: 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.
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.
Groundhog Day: The States That Keep Repeating Their Pension Mistakes
Why Michigan’s 2017 Pension Reform Helps Teachers
Teaching in Michigan is about to become a lot more attractive. Recently enacted legislation will improve retirement choices for future teachers, increase compensation for some recently hired teachers, and ensure the state will pay every dollar of pensions promised to teachers.
Costs of paying off the state’s rising teacher pension debt are scheduled to skyrocket and consume any future resources that could otherwise be used to increase teacher pay or get money into the classrooms. Absent reform, this debt growth would have been unconstrained and posed a threat to the retirement of teachers across the state.
Retirement security and good compensation for teachers are important issues to us. Professionally, we work on a national project that aims to ensure pension plan solvency and retirement security for public sector workers. Personally, we both have close family who are active or retired teachers in Michigan.
We firmly believe that states need to keep 100 percent of their pension promises, and Michigan’s new reform legislation does that. First, all new teachers will have a real choice of retirement plans upon hiring and can pick the option that works best for them and their families. The default is a “defined contribution” retirement plan similar to the 401(k)s offered in the private sector, but with a big difference — teachers do not have to pick their own investments or make strategic allocation of assets if they do not want to.
Teachers could simply set their preferred retirement date — say 35 years in the future — and let professionally designed “target date funds” reallocate their assets over time in a way that creates minimal risk and maximizes return. And they can choose to purchase annuities if they’d like their benefits distributed just like a traditional pension check.
The other option is a “Pension Plus” plan with the same defined benefit pension currently offered to teachers, but with its own big difference — the state will be more honestly accounting for the cost of providing this new benefit than they are now. Ensuring that pension benefits are accurately priced by actuaries to avoid pension debt is what makes Michigan’s new retirement legislation so strong. Plus, where teachers currently pay two-thirds of the costs of the pension plan, under the new design they will pay 50 percent of costs.
Second, 20 percent of teachers hired since 2012 have chosen an optional—but weak—401(k)-style benefit over a pension, where if they put in 6 percent, their employer matches an additional (and skimpy) 3 percent. The reform upgrades this benefit to match the new defined contribution plan, where new teachers will only have to put in 3 percent of their salary and to get 7 percent from their employer.
Last, for retirees or teachers who have already earned pensions, the adopted legislation creates a viable path to solvency for their beleaguered pension fund $29 billion in debt. Absent changes, Michigan was on track to see pension debt payments effectively double by the 2030s, requiring billions in annual debt payments for teacher pensions coming out of the state’s School Aid fund (instead of going into the classroom or enabling teacher pay increases).
Unfortunately, the state has currently saved less than 60percent of the money it needs to pay promised pension benefits. This dismal fiscal position is mostly because actuarial assumptions used to determine annual contributions for the pension fund have been consistently inaccurate. For example, the state has consistently underperformed its expected rate of return on invested assets for the past 20 years. As a result, Michigan had over $2 billion in required pension debt payments last year — more than 25 percent of the amount paid in salary to teachers.
Fortunately, the Legislature and governor are embracing more realistic assumptions about the cost of funding pensions and planning to chip in more money every year down the road to get pension debt paid off. While there is still more room to adopt better assumptions, this year’s state budget allocates an additional down payment towards the debt of over $200 million.
Teachers themselves should welcome the new reforms. Not a single dollar of pension benefits was cut. Teachers currently in a weak retirement plan are getting a sweetened benefit in the process. Future teachers will have a real choice between generous defined contribution plan or a pension (with a similar benefit as today’s teachers). And the Legislature is depositing hundreds of millions more into the pension fund. All together, the reform package will ensure retirement security for every teacher in Michigan.
This article republishes “Pension reform will help Mich. teachers” by Anthony Randazzo and Leonard Gilroy, an opinion article in The Detroit News from July 6, 2017. The whole article is available here.
Lessons from Closing the Michigan State Employees’ Retirement System
When pension plans are struggling with solvency, a common proposal is to close the pension plan. However, only a few large public sector pension plans have ever been closed to new hires, leading to a mixture of mistaken ideas about both the positives and negatives related to switching from the status quo to a new kind of benefit design. Closing a pension fund does not solve the problem of existing unfunded liabilities; but at the same time new members are not needed to keep a pension plan solvent. The case studies linked to below explore why Michigan closed its pension plan for state employees in 1997, and what the outcome has been.
In short, closing the Michigan State Employees Retirement System (MSERS) in the late 1990s has allowed the state to avoid at least $1 billion in unfunded liabilities that would have accumulated due to underperforming investment returns since then. But the mismanagement of funding policy has allowed for pension debt to accrue that never should have happened in the first place.
Mishandled Funding Policy
Michigan maintained an 8% assumed rate of return until 2017, which proved to be overly optimistic. Payments into MSERS were predicated on that investment return assumption and thus had been less than necessary. To make matters worse, over the past two decades the state has sometimes skipped payments, used the amortization schedule to backload costs, and was very slow to update other actuarial assumptions too, such as the payroll growth assumption (which ignored the state’s declining population).
As a result, the 100% funded pension fund in 1997 has developed several billion in pension debt on its existing members, even though it is closed. This is a warning to any state considering a similar choice — closing a pension fund does not eliminate the need for sound funding policy.
Closing Plan Has Helped Avoid Even Larger Debt
However, Michigan is actually still in a better place than if they hadn’t closed the pension fund for state workers. A common misconception is that pension plans need new members to finance the benefits of the retirees, but because pension funds are supposed to be pre-funded, this is not true. New members do mean additional contributions, but they also mean additional liabilities.
Had new members been allowed to join MSERS, those additional promised benefits (accrued liabilities) would have accumulated pension debt (unfunded liabilities).
The story of Michigan mishandling the closure of MSERS highlights the real pros and cons related to switching from an existing pension plan to some other retirement benefit structure:
- Closing a pension plan does not eliminate any existing debt nor prevent the possibility of future debt from accruing. All promises made have to be honored and funding policy must be maintained in a way that allows for those promises to be kept. Closing a pension plan is not on its own a silver bullet to solve sustainability concerns.
- At the same time, the problem for MSERS has not been a lack of new members. MSERS has seen its solvency slip because of a lack of state contributions along with leaving the assumed rate of return too high for too long. New members would have meant additional promised benefits that would have meant today’s unfunded liability for MSERS being higher.
Read More Here —