Teacher Pensions Blog

Roughly 90 percent of all teachers are enrolled in a pension fund. However, each fund has its own rules and set of conditions that determine the overall value of a retired teacher's annual benefit. Interested in data on the average teacher pension in your state?  See the chart below for the latest data, updating an earlier post!  

The first column shows the “average pension” for newly retired teachers from the past ten years in each state. In the majority of states that don’t list the average benefit for newly retired members outright, these data are retrieved from states’ observations about retirees and beneficiaries added to the retirement plan’s rolls and about new benefit payments added to the rolls. These data are based on 2016 figures unless otherwise noted. Keep in mind that this method is not completely precise– these numbers also include beneficiaries added to the rolls because their spouses passed away, as well as potential increases in benefit payments due to inflation adjustments.

The next column shows, among all newly retired teachers, what the median retiree earns. The third column shows the average pension for all current retirees and beneficiaries. Finally, the last column show the estimated percentage of new teachers who will actually receive a pension. The data come from each state's annual comprehensive financial report.  

In Maryland, for example, the “average pension” for new teachers is $24,409. But the median pension for new retirees is just $16,404, meaning half of all new retirees earn less than that amount. Moreover, 57 percent of new Maryland teachers are expected to leave the system before qualifying for a pension.

*Includes all public employees

(y) Indicates data based on 2017 figures.

Knowing what your state’s “average pension” can be interesting. But this amount doesn’t necessarily reflect the amount that many teachers actually earn. Below are four important caveats about the data you’re looking at:

1. Not all teachers qualify for a pension. States can and do set relatively high minimum service requirements, ranging from five to 10 years, and over half of incoming teachers won’t qualify for retirement benefits in their state. Leaving these teachers out of the overall pool obscures who gets counted in the “average pension.”
2. Of the teachers who do qualify for benefits, their benefits will vary widely. The statistical average, or mean, hides the fact that only a small percentage of incoming teachers will receive a full career pension at retirement, while many, many more get only a small amount. Also, teachers in 15 states aren't covered by Social Security; pensions in these states tend to be larger to make up for this fact.
3. These amounts only tell us what a teacher earns at retirement—not what she contributed to her state or local system. The averages include many teachers who qualify for some pension, but those pensions may be worth less than the value of the teacher's own contributions.
4. In many states, teacher pension plans have created newer, less generous retirement tiers for newly entering members. If you’re a new teacher and you live in a state with a tiered plan, your retirement plan could end up looking significantly more meagre than the numbers below.

Which state has the best (or worst) retirement plan for teachers?

There are lots of ways to answer that question. In the past, we've graded states based on a number of factors, such as how long states require teachers to stay before qualifying for a benefit (aka the "vesting" period), how long teachers would need to stay to qualify for an adequate benefit, and whether the state is keeping its unfunded liabilities in check. 

But perhaps a simpler answer is to look just at how much states say they are contributing toward teacher retirement benefits. The graph below plots the results. It adds together each state pension plan's "normal cost" of benefits* plus Social Security contributions. Most experts recommend that employees save 10-15 percent of their salary each year toward retirement, in addition to Social Security. Assuming that employers are responsible for half of that amount, I've included the horizontal red bar as a signal for an adequate employer contribution rate. Purely in terms of contribution rates, 16 states meet this adequacy threshold, while 34 states and the District of Columbia do not. 

In fact, while we may take Social Security for granted in the private sector, this chart illustrates just how important it is for teachers. Out of the 15 states plus D.C. that do not offer their teachers Social Security benefits, just one, Nevada, reaches the adequacy threshold. 

Employer contributions toward benefits_2018.png

Another way to say this is that the majority of the worst-performing states are all non-Social Security states. Under Ohio's defined benefit pension plan, for example, teachers are not getting any employer-provided retirement benefits at all. (See here for an explanation of how that's possible.) In fact, 10 states--Ohio, Missouri, Louisiana, Massachusetts, Colorado, Texas, Maine, Rhode Island, Connecticut, and Kentucky--are contributing less toward teacher retirement benefits than most employers are required to contribute to Social Security alone. 

In the median state pension plan, employers are contributing 4.5 percent of salary toward teacher retirement benefits. Compared to employer contributions toward private-sector 401(k) plans, that 4.5 percent contribution toward retirement benefits could be consider good but is also not overly generous.  

There are a couple other important distinctions here. In a 401(k), an employee's benefit is directly related to their employer's contribution rate. But that's not true under teacher pension plans, where benefits are delivered via formulas tied to the worker's salary and years of service. That is, the employer contribution rates in pension plans are the plan's best guess for how much benefits are worth on average across all employees in the plan. As a result of the way those formulas work, long-serving veterans receive much more generous benefits than short- and medium-term workers. That means some fraction of teachers even in low contribution states will receive adequate retirement benefits. But the majority of teachers, even in higher-contributing states, will earn much less than the plan's average. This is especially true for the most recent generation of teachers, because states have been cutting benefit formulas for new hires. States typically do not report what those averages would look like for different groups of teachers, but the figures would certainly look even worse for new teachers than the averages reported here. 

These numbers also rely on each plan's own assumptions for how much its benefits are worth. Those calculations are tied into the plan's assumed rate of return, which many experts believe are too aggressive. 

Still, if we take states at their own words, the benefits they're providing are not all that generous, on average. The biggest problems on the benefit side are tied to an overall lack of generosity, an inequitable distribution of how benefits are delivered, and the lack of Social Security in some states. These problems are fixable, but they would require states to think differently about how to structure their retirement benefits so that all teachers received adequate retirement security. 

*States break down their pension contributitions into two buckets. The numbers in this post rely solely on the first category of pension contributions, called the plan's "normal cost." Expressed as a percentage of salary, it's the amount of money that the state's actuaries think the plan's benefits are worth, on average across all members in the plan. Although not included here, states are also making significant contributions toward the second category of pension spending, the plan's contribution toward any unfunded liabilities, often referred to as the plan's "amortization costs." For more background on this distinction, see this post. The contribution rate data in this post comes from the Public Plans Data (PPD) from the Center for Retirement Research at Boston College. Note that all figures in this post refer to state-run teacher pension plans. In the case of a state like Alaska, which has closed its pension plan to new workers, the figures reflect the closed plan's benefit levels.