States Running Healthy Teacher Pensions

Most teacher pension plans in America have some funding shortfall, and a few are distressed. But there is hope. A handful of states have managed their teacher pension plans well. These states show that it is possible to run a teacher pension plan in a healthy way, ensuring it is consistently fully funded.

At the end of 2019, there were three states that reported they had 100% of the money necessary to cover all current and future benefits, assuming they hit their investment return targets:

• Tennessee — has two teacher plans, one for educators hired before 2014 and one for those hired since then. Combined the two plans have a reported 102.6% funded ratio.
• New York State — runs a teacher pension plan for all educators in the state outside of New York City (which has its own plan).  The upstate plan has a 102.2% funded ratio. Unfortunately, the pension plan for NYC is not as well funded.
• South Dakota — runs a retirement system for all public workers combined, including teachers. This system is historically one of the best funded, and last reported it had a 100.1% funded ratio.

Wisconsin also has a well funded pension plan, and recently created pension funds for teachers in Indiana and Michigan are well funded too. The point is that pension plans are not inherently problematic. Financial distress arises from design and management decisions. With the will to do so, all states can  follow best practices and manage their pension systems well.