Characteristics of Education Pension Plans

Retirement benefits that provide education employees with post-employment income security are critical to the growth and maintenance of a well-trained and stable public education workforce, which is a key component of quality education. To support this objective, the National Education Association (NEA) regularly examines the benefits, structure, and finances of large public education pension plans.

This detailed study, entitled Characteristics of Large Public Education Pension Plans, provides information that NEA staff, leaders, and members can use to understand, defend, and strengthen the quality and level of retirement benefits of public education employees. 

An essential function of Characteristics is to provide a rich, factual underpinning for discussions, analyses, and evaluations of public pensions. The findings in this publication dispel many of the myths and misrepresentations put forth by opponents of public retirement systems. 

The 2022 edition builds on past studies by updating information in the areas of plan membership, assets and liabilities, benefit design, Social Security coverage, retirement eligibility, vesting, purchase of service credit, cost-of-living adjustments, state taxation of benefits, contribution rates, benefits formulas, actuarial methods and assumptions, funding levels, and board membership. While four new primary plans were added, significantly more subplans (such as new “tiers” of benefits within plans) have been added to the detailed tables. Over the last six years, the plans themselves have made significant changes. These can include new accrual and contribution rates, modified retirement eligibility rules, and changes to actuarial assumptions. 

In addition, the methodology for data collection has changed since the previous versions of the report. Notably, in earlier editions of Characteristics, plans themselves were first surveyed and asked to provide the data directly. These surveys were then supplemented with additional, publicly available data. In the 2022 edition, the information comes directly from publicly available data sources without the initial survey. (For more information on the methodology, see Appendix I.) 

Finally, it is important to remember that the specifics in this report represent a snapshot of each plan. For example, the data extracted from plans’ actuarial valuations (which contain both forward-looking and historical information) span a range of several years. The oldest valuation report is from June 2018, and the newest is dated July 2021. 

As a result, the data presented here is not strictly comparable to those in earlier editions. 

This report covers two major types of retirement plans: defined benefit (DB) plans and defined contribution (DC) plans. In their basic form, DB plans provide a fixed, lifetime annuity to participants, with the benefits based on a formula that considers years of service and an average final salary over a specified number of years. The basic DC plan provides a benefit that is derived from the accumulated contributions and earnings in an individual participant’s account; typically, both employer and employee contributions are mandatory and are set at some predetermined level. For more on the differences between DB and DC plans, see Appendix II. 

This report provides a wide range of data on 118 retirement plans, four more than in the 2016 edition. 

In 2022, as compared to the 2016 report, we find that several trends have emerged. First, while there are four new plans, it is much more common for plans to create new “tiers” among existing plans. These tiers typically serve to decrease benefits in some way and usually only affect newly hired employees. The reforms have taken the form of more stringent early or normal retirement eligibility requirements. They can also include reduced benefit multipliers, lower cost of living adjustments, or higher vesting periods. These changes help reduce plans’ long-term liability costs, but they can be to the detriment of plan participants, who will see a reduced retirement benefit in some way compared to their peers in the older tiers. Indeed, research has found that state and local governments have been impacted tremendously by the “Great Resignation” of the past two years and are having trouble recruiting the next generation of employees. Relatively generous retirement benefits have historically1 been one way that the public sector can recruit and retain a high-quality workforce—especially among educators—despite offering lower salaries than the private sector for equally skilled jobs. So, it remains to be seen whether adding new tiers that decrease retirement benefits will ultimately make recruiting2 and retaining a high quality teaching workforce more difficult for states and municipalities. 

Another prevailing trend in the 2022 report is that nearly all plans studied have made conservative adjustments to one or more of their actuarial assumptions since 2016. These changes speak to the notion that retirement boards and actuaries are attempting to be more cautious in their assumptions to ensure the plans’ long-term financial health.

A move to more conservative assumptions will instantly make a plan look less well funded, even if the dollar amount of assets and liabilities and the level of benefits promised to employees, have not changed at all. Despite this fact, the funded status of plans is approximately where it was in 2016, in the aggregate, with some evidence of a slight uptick. Taken together, this means that plans appear to be more financially healthy than they have been in the past.

A final trend in 2022 Characteristics is that, in aggregate, employer contribution rates are increasing. Fewer plans have fixed statutory rates, and there appears to be more of a push to fund the Actuarially Determined Employer Contribution. This trend shows the plans’ increasing commitment to achieving full funding and long-term financial health.