Utah

How Does Teacher Retirement Work in Utah?

In Utah, teachers are a part of the Utah Retirement System, which includes not only teachers but all state employees. The URS was founded in 1963.

Since July 2011, new teachers in Utah have had a choice about the retirement plan they participate in. These TIer II teachers can choose between the Hybrid Retirement System and the Defined Contribution Plan.  New teachers must make their selection within the first year of employment. 

The Defined Contribution plan is exclusively a DC fund with no pension component. The Hybrid system combines elements of both a traditional defined benefit (DB) pension plan, and a defined contribution (DC), 401k-style plan. Although it only comprises part of the hybrid plan, the basic structure of Utah's teacher defined benefit (DB) pension is similar to that of other states. Unlike other retirement funds, a teacher’s contributions and those made on their behalf by the state or school district do not determine the value of the pension at retirement. Although those contributions are invested in the market, and often managed by private equity and hedge funds, the pension wealth component of the overall hybrid plan is not derived from the returns on those investments. Instead, it is determined by a formula based on their years of experience and final salary.

How Does Utah's Hybrid Plan Work?

For teachers hired since 2011 who elected to join Utah's Hybrid plan, their employer contributes 10 percent of their salary annually split between the DB and DC components of the plan. In 2019-20, employers contributed 8.97 percent to the DB plan, and thus 1.03% was allocated to the DC plan. Teachers may, but are not required to contribute to the Hybrid plan. 

When a teacher retires the total value of their DB portion of the plan is determined by formula based on years of experience and a teacher's final average salary. Greater detail on the pension formula structure is provided in the section below.

In addition to the DB part of the Hybrid plan, there also is a DC component. Each year a teacher's employer contributions to this fund. Since only 10 percent of salary will be contributed from employers in a given year, how much is distributed to the DC portion depends on the share of salary the employer is actuarially required to spend on the DB component.  

Teachers vest in the Hybrid plan after 4 years of service. Should a teacher leave the classroom or the state after vesting but before reaching retirement age, they are elgible to bring the DC portion with them. Yet despite qualifying for a pension, they cannot take the pension and combine it with another state's pension fund. They will have to have two different DB retirement funds.  Participating in two pension funds can reduce the total value of a teacher's retirement.  

How Is the DB Portion of Utah's Hybrid Plan Calculated?

Pension wealth is derived from a formula. The figure below illustrates how a teacher pension is calculated in Utah. It is important to note, however, that the state assesses an educator’s final salary based on their highest 5 years of salary. For example, a teacher who works for 25 years with a final average salary of $70,000 would be eligible for an annual pension benefit worth 37.5 percent of their final salary. But keep in mind the DB plan is only a portion of a teacher's retirement benefit under the hybrid plan.

Who Qualifies for The Pension Portion of Utah's Hybrid Plan?

Like most states, teachers need to serve a number of years before qualifying for a pension. For new hires participating in the hybrid fund, Utah has a 4 year vesting period. While educators qualify for the pension portion after 4 years of service, the pension may not be worth all that much. Moreover, educators can’t begin to collect it until they hit the state’s retirement age. The state sets specific windows when teachers can retire with benefits based on age and years of experience. For new teachers starting out in Utah, they can retire with their full benefits:

• At age 65 with at least 4 years of experience;
• At age 62 with at least 10 years of experience;
• At age 60 with at least 20 years of experience; or,
• At any age with at least 35 years of experience. 

Additionally, Utah allows early retirement from age 60 to 64 for educators with fewer than 35 years of experience. However, teachers taking that option will have their benefits reduced.

How Much Does Utah's Pension System Cost?

Employer contribution rates are set by the state legislature and can change year-to-year. In 2018,  the state contributed 15.8 percent to the pension fund. However, not all of that investment goes toward benefits. 4.25 percent went to benefits, while the remaining 11.55 percent went to pay down the pension funds' debts. 

As with most state pension funds, Utah's hybrid teacher retirement system provides the greatest benefits to teachers who stay the longest, while leaving everyone else with inadequate benefits. With that in mind, teachers participating in Utah's hybrid plan should think carefully about their career plans and how they interact with the state's retirement plan.

How Does Utah's DC Plan Work?

Since 2011, teachers can elect to particiapte in Utah's Defined Contribution Plan rather than the Hybrid plan. This plan includes only a DC component. Each year a teacher's employer contributes 10 percent to the fund annually. Teachers are vested in the fund and eligible for the entire value of their account after 4 years of service. Should a teacher leave the profession or the state after vesting, they would qualify to take the full value of their benefits with them.