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 West Virginia’s Public Pensions

West Virginia 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 West Virginia, state law allows the legislature to increase employee contributions. In 1994, they did just that for the first time, increasing the employee contribution from 6% to 9% for public safety employees. Some public workers sued the state in an effort to have that part of the law overturned, but the court sided with the state.

Changes to workers’ cost-of-living adjustments and benefit calculations are also statutorily allowed for active employees according to West Virginia law.

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 West Virginia can shift workers’ vesting periods, because this issue has not been brought to court and there is no existing law explicitly prohibiting this change.

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. 

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.

Lessons from Closing the West Virginia Teachers’ Retirement System

One of the first states to attempt improving the sustainability of its teacher pension plans was West Virginia in the 1990s. Unfortunately, the pioneers in this process bungled the process miserably. There are important lessons to learn from this experience about responsibly paying pension bills, ensuring that alternatives to pensions are providing a path to retirement security, and following through on promises made to individuals even if they are in a closed pension plan. Unfortunately, the West Virginia story is instead frequently cited as a cautionary tale to avoid working on improving pension system funding all together. And that version of analysis is incomplete.

The Problems West Virginia Was Trying to Solve

The 2018 teachers strike in West Virginia was not the first of its kind. Back in the spring of 1990, educators walked off the job across the state demanding better pay and improvement to the education system in West Virginia generally. At the same time, the West Virginia Teachers’ Retirement System (WVTRS) was roughly 10% funded with $3.5 billion in unfunded liabilities — a huge amount for 1990. The strike worked and teachers received a $1,000 across the board raise (around $1,900 in today’s dollars). The legislature also voted to create a new defined contribution retirement system for future teachers, given the struggles with the existing system.

The Complicated History of West Virginia’s Reforms

For most of the years after, the state legislature paid the actuarially determined contribution. But the funding policy generating that contribution rate wasn’t strong enough to drive the closed pension system quickly toward solvency. Between 1991 and 2004, the funded ratio of WVTRS had only improved from around 10% to 22%.

What happened next has been the subject of much controversy.

Here the perspective of those opposed to the reforms:

  • After more than a decade, the legislative efforts from 1990 had not saved WVTRS. The pension system was still mired in unfunded liabilities.
  • And to make matters worse, the closed retirement system was paying out more in benefits than it was bringing in with contributions, draining the fund.
  • Meanwhile, the defined contribution plan was not helping teachers build adequate retirement savings. There weren’t sufficient required contributions or guardrails to help teachers effectively invest those contributions that were made.

But here is another perspective, critical of how reforms were implemented but not of the effort:

  • After more than a decade, the legislative efforts from 1990 hadn’t saved WVTRS, but it was at least in a better position. The funded ratio was weak, but it was better than before. West Virginia was making the positive shift from a “pay-as-you-go” model in the 1980s (which led to the underfunding) to the more appropriate “pre-funding” model where normal cost pays for benefits accrued each year, and unfunded liability amortization payments are used to close any funding shortfall. They were just shifting too slowly.
  • The state was paying out more in benefits than bringing in via contributions, but this shouldn’t have mattered if the underlying funding policy was focused making amortization payments in adequate, equal dollar amounts each year.
  • Meanwhile, the defined contribution plan was definitely not offering enough in benefits to support retirement security. But this was in part the result of the poor design from the early 1990s (there was little known at the time about best practices for contributions and guardrails), and in part because the DC plan was employer focused (with long vesting periods) instead of being grounded in policies aiming to support retirement income for teachers. And neither of these failings are inherent flaws in DC plans

Funded Ratio History for WVTRS

Source: West Virginia Consolidated Retirement Board comprehensive annual financial reports, actuarial valuations, and GASB 68 reports.

Did Re-opening the Pension Plan Help WVTRS?

In 2005, West Virginia attempted to raise money with a bond issuance, but the measure failed. Instead, the legislature re-opened the pension plan to teachers. In the years since then, the funded ratio for WVTRS has improved, but the system has still struggled. In fact, in 2015, the state cut the value of benefits for future teachers and raised employee contribution rates in order to try again at improving the status quo.

Whether the re-opening of the pension plan itself has helped WVTRS is also a matter of some controversy.

Here is the perspective of those opposed to the reforms:

  • Re-opening the pension plan created savings because the normal cost for pension benefits was only half of the employer contributions to the DC plan. These savings have helped the state improve the funded ratio.
  • Pension benefits are more efficient than defined contribution benefits, and teachers are better off as a result.

However, here are two alternative perspectives:

First, re-opening the pension plan has not created budgetary savings that were used to improve the funded status of WVTRS. As I wrote in a case study for the Pension Integrity Project, there was a spike in the contributions paid to WVTRS in 2006 and 2007, the years after the system was re-opened. This was driven by using $807 million from a state settlement with tobacco companies, and the lump sum contributions pushed the WVTRS funded ratio up to around 50% by 2007. Since then, though, the funded ratio of WVTRS has not meaningfully improved, as shown in the nearby table.

The primary factor behind the improvement in WVTRS is not the re-opening of the retirement system but the responsible choice to add a lump sum of cash into the pension fund when the money was available — this could have been done even if the pension plan had remained closed.

Second, while the DC plan was providing inadequate benefits, the pension plan in West Virginia was similarly weak. Bellwether Education Partners did a comparative analysis of wealth accumulation for teachers in the pension fund, before and after the reform, as well as the intervening defined contribution (DC) plan. They found “that all of the plans were poorly constructed from the outset and fail to provide a significant retirement benefit to a majority of West Virginia’s educators.” In fact, their modeling shows that even the flawed DC plan was providing a more valuable retirement benefit to approximately 77 percent of West Virginia teachers:

  • “For the first five years of service, the [West Virginia] DB plan generates a more valuable retirement benefit. However, due to vesting rules, teachers wouldn’t qualify for employer-provided benefits until completing their fifth year under the pension or their sixth year under the DC plan. But between teachers’ sixth and 33rd year of service, the DC plan produces greater retirement wealth. Given West Virginia’s teacher retention rates, that means the DC plan is a better option for more than three-quarters of the state’s educators.”

Taking the Right Lessons from West Virginia

There is nothing inherently good or bad about pension benefits. DC plans are not inherently a better or worse alternative to pensions. Efforts to reform retirement systems are not universally wise or foolish. The reality is that the management of public sector retirement benefits is a complex challenge. States should carefully examine their systems to consider what reforms can ensure high-quality retirement options to all educators in the plan, while also directly addressing the challenges they are trying to solve. Here are the key lessons to learn from West Virginia’s experience:

  • West Virginia didn’t adequately fund its closed pension system, even though they were trying to do the fiscally difficult task of shifting to pre-fund retirement benefits. When closing a pension plan to new hires, the task of getting the debt paid off and sufficient funds into the system doesn’t go away, and it is hard work. West Virginia didn’t take advantage of the opportunity to get money into the closed system while new members were being added to an alternative retirement plan.
  • West Virginia didn’t ensure its new DC plan was employee focused, with adequate policies to create a path to retirement security. While the DC plan reduced employer exposure to increased liabilities, the poor design doomed the retirement plan to future political failure.
  • The correlation between the re-opening of the pension plan and its improved funded status is just a function of using the tobacco settlement money to pay down unfunded liabilities; there is no causal connection to re-opening the pension plan and improved funding.
  • Re-opening the pension plan may have been appropriate to give an option to West Virginia teachers in retirement benefits, but ending enrollment in the DC plan nullified this potential value.

As the Bellwether study concludes, pension reform is not supposed to be an escape from the retirement obligations owed to current and retired teachers. Rather, “it is a change that allows state the opportunity to re-think how to provide tomorrow’s teachers with a more valuable benefit than they could have hoped for under existing plans.”

Taking the right lessons away from West Virginia can help other states avoid similar mistakes; failing to learn the right lessons could lead to costs for teachers and states alike.

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