April 17, 2002 |
2002-R-0419 | |
TEACHER RETIREMENT PLAN INCOME REPLACEMENT AND PLAN COMPARISONS | ||
By: Judith Lohman, Chief Analyst | ||
You asked (1) what percentage of a teacher's working income the Teacher's Retirement System (TRS) replaces at various age and service levels, (2) what the maximum TRS pension is, and (3) how TRS compares to other state retirement systems on (a) age and years of service for normal retirement, (b) pension maximum, and (c) income replacement.
SUMMARY
TRS benefits replaces between 25% and 75% of a teacher's working salary, depending on how old he is and how many years of credited service he has when he retires. For teachers with 30 years of credited service, TRS replaces between 51% and 60% of their working salaries, depending on age, according to Teachers' Retirement Board (TRB) estimates. For a teacher with 30 years of service who is age 60 or older and therefore eligible for a normal, unreduced benefit, TRS replaces 60% of salary. Thirteen states have higher salary replacement rates and 23 states have lower rates. Connecticut is one of 14 states that replace 60% of salary at age 60 after 30 years' service.
All states have minimum age and service requirements to qualify for normal, unreduced teacher pensions. Many allow a teacher to qualify for a pension at any age after a certain number of years. The most common minimum service level for these "any age" unreduced retirements is 30 years. Connecticut's and Pennsylvania's minimums of 35 years for such a retirement are the highest. Eleven states requires less than 30 years for an "any age" normal retirement and nine states have no such retirements, requiring teachers to attain a minimum age, such as 60 or 62, before being eligible for a normal retirement.
The maximum TRS retirement benefit is 75% of a teacher's final average salary (FAS) for teachers retiring with 37. 5 years of credited service. In Connecticut, FAS is the average of the teacher's three highest-paid years. Two other states (Illinois and Nevada) have a 75% limit and three states (Iowa, Vermont, and Wisconsin) have lower limits. Thirty-five states either have no limit or a 100% limit. These limits may translate into benefits that are higher or lower than Connecticut's, depending on how each state calculates final average salary.
TRS INCOME REPLACEMENT PERCENTAGES
Average and Maximum
TRS has three types of retirement: normal, early, and proratable. To qualify for a normal retirement with the most favorable benefit formula, a teacher must be either (1) age 60 and have 20 years of Connecticut public school service or (2) have at least 35 years of service, at least 25 in Connecticut.
To qualify for early retirement with a reduced pension, a teacher must (1) have at least 25 years of credited service, 20 in Connecticut or (2) be age 55 and have at least 20 years of credited service, 15 in Connecticut. To qualify for a reduced proratable retirement, a teacher must be age 60 and have between 10 and 20 years of Connecticut service.
Although meeting the minimum qualifications entitles a person to a pension, monthly benefit levels vary based on actual years of service and benefits replace varying percentages of income. The maximum TRS pension is 75% of the member's active duty salary (CGS § 10-183g(a)). TRS members retiring after September 1992 receive a minimum cost of living adjustment of 1. 5% per year.
Replacement Percentage Ranges
The tables below show the estimated range of percentages of a teacher's active duty salary that a TRS pension replaces at various ages and years of service, according to TRB. All tables assume the teacher worked full-time, that he chooses the highest benefit payout (straight-life annuity with no continuation after death for a surviving spouse or beneficiary), and that he starts receiving benefits immediately upon leaving teaching.
Tables 1-3: TRS Income Replacement Percentages (Normal and Early Retirement)
Age |
Years of Credited Service |
|||||||||||||
20 |
21 |
22 |
23 |
24 |
||||||||||
55 |
28. 00% |
29. 40% |
30. 80% |
32. 20% |
33. 60% |
|||||||||
56 |
30. 40 |
31. 92 |
33. 44 |
34. 96 |
36. 48 |
|||||||||
57 |
32. 80 |
34. 44 |
36. 08 |
37. 72 |
39. 36 |
|||||||||
58 |
35. 20 |
36. 96 |
38. 72 |
40. 48 |
42. 24 |
|||||||||
59 |
37. 60 |
39. 48 |
41. 36 |
43. 24 |
45. 12 |
|||||||||
60 |
40. 00 |
42. 00 |
44. 00 |
46. 00 |
48. 00 |
|||||||||
Age |
Years of Credited Service | |||||||||||||
25 |
26 |
27 |
28 |
29 |
30 |
31 | ||||||||
50 |
25. 00% |
28. 08% |
31. 32% |
34. 72% |
38. 28% |
51. 00% |
54. 56% | |||||||
51 |
27. 00 |
28. 08 |
31. 32 |
34. 72 |
38. 28 |
51. 00 |
54. 56 | |||||||
52 |
29. 00 |
30. 16 |
31. 32 |
34. 72 |
38. 28 |
51. 00 |
54. 56 | |||||||
53 |
31. 00 |
32. 24 |
33. 48 |
34. 72 |
38. 28 |
51. 00 |
54. 56 | |||||||
54 |
33. 00 |
34. 32 |
35. 64 |
36. 96 |
38. 28 |
51. 00 |
54. 56 | |||||||
55 |
35. 00 |
36. 40 |
37. 80 |
39. 20 |
40. 60 |
51. 00 |
54. 56 | |||||||
56 |
38. 00 |
39. 52 |
41. 04 |
42. 56 |
44. 08 |
52. 80 |
54. 56 | |||||||
57 |
41. 00 |
42. 64 |
44. 28 |
45. 92 |
47. 56 |
54. 60 |
56. 42 | |||||||
58 |
44. 00 |
45. 76 |
47. 52 |
49. 28 |
51. 04 |
56. 40 |
58. 28 | |||||||
59 |
47. 00 |
48. 88 |
50. 76 |
52. 64 |
54. 52 |
58. 20 |
60. 14 | |||||||
60 |
50. 00 |
52. 00 |
54. 00 |
56. 00 |
58. 00 |
60. 00 |
62. 00 | |||||||
Age |
Years of Credited Service | ||||||
32 |
33 |
34 |
35 |
36 |
37 |
37. 5 | |
50 |
58. 24% |
62. 04% |
65. 96% |
70. 00% |
72. 00% |
74. 00% |
75. 00% |
51 |
58. 24 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
52 |
58. 24 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
53 |
58. 24 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
54 |
58. 24 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
55 |
58. 24 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
56 |
58. 24 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
57 |
58. 24 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
58 |
60. 16 |
62. 04 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
59 |
62. 08 |
64. 02 |
65. 96 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
60 |
64. 00 |
66. 00 |
68. 00 |
70. 00 |
72. 00 |
74. 00 |
75. 00 |
Source: Teachers' Retirement Board
Tables 4 and 5: Proratable Retirement Income Replacement
Age |
Years of Credited Service | ||||
10 |
11 |
12 |
13 |
14 | |
60+ |
10. 00% |
12. 10% |
14. 40% |
16. 90% |
19. 60% |
Age |
Years of Credited Service | |||||
15 |
16 |
17 |
18 |
19 |
20 | |
60+ |
22. 50% |
25. 60% |
28. 90% |
32. 40% |
36. 10% |
40. 00% |
Source: Teachers' Retirement Board
COMPARISONS WITH OTHER STATES
Age And Years Of Service For Normal Retirement
Like Connecticut, most teacher retirement plans specify minimum age and service requirements before a teacher is eligible to receive a full ("normal") retirement pension. Twenty-six states, including Connecticut, allow members to retire with a full pension at any age if they have a minimum number of years of credited service. The most common minimum is 30 years, although Connecticut requires 35 years. Some states allow a member to retire with full benefits if his age and years of service added together equals or exceeds a specified number, such as 80.
The minimum age and years of service required for a teacher to retire with a normal unreduced pension in each state is shown in Table 6 below.
Maximum Pension
Twenty-five states limit teacher pensions, all but one to a percentage of his final average salary. (Georgia limits a teacher's pension by limiting the number of years of service credit he can accrue to 40. ) Calculations of final average salary vary among states, but they typically use an average of a teacher's one-to-five highest paid years. Among the states that limit pensions, the most common limit is 100% of final average salary (15 states). The next most common is 75%, which is used by Connecticut and two other states. Vermont's 50% limit is the lowest of any state.
Each state's limit is shown in Table 6 below.
Table 6: Normal Teacher Retirement Age and Service Requirements and Pension Limits
STATE |
NORMAL RETIREMENT AGE/YEARS OF SERVICE |
LIMIT (% Final Average Salary) |
Alabama |
60/10 Any/25 |
None |
Alaska |
60/8 Any/20 |
None |
Arizona |
65/5 62/10 Age + years of credited service = 80 |
None |
Arkansas |
60/5 Any/28 |
100% |
California |
50/30 |
100% |
Colorado |
50/30 55/Age + service = 80 65/5 |
100% |
Connecticut |
60/20 Any/35 |
75% |
Delaware |
62/5 60/15 Any/30 (Any/28 for retirements after 1/1/01) |
None |
Florida |
62/10 Any/25 |
100% |
Georgia |
60/10 Any/30 |
40 years of service |
Hawaii |
62/10 55/30 |
None |
Idaho |
65/5 |
100% |
Illinois |
62/5 60/10 55/35 |
75% |
Indiana |
65/10 60/15 55/Age + service = 85 |
None |
Iowa |
65/Any 62/20 Age + service= 88 |
65% |
Kansas |
65/Any 62/10 Age + service=85 |
None |
Kentucky |
55/5 Any/27 |
100% |
Louisiana |
60/10 55/25 Any/30 |
100% |
Table 6: (Continued)
STATE |
NORMAL RETIREMENT AGE/YEARS OF SERVICE |
LIMIT (% Final Average Salary) |
Maine |
62/10 Any/25 |
100% |
Maryland |
65/5 to 65/2 Any/30 |
100% |
Massachusetts |
55/10 Any/20 |
80% |
Michigan |
60/10 55/30 |
None |
Minnesota |
Social Security normal age Age + years of service = 90 |
100% |
Mississippi |
60/4 Any/25 |
100% |
Missouri |
60/5 55/25 Any/30 Age + service = 80 |
100% |
Montana |
60/5 Any/25 |
None |
Nebraska |
65/5 |
None |
Nevada |
65/5 60/10 Any/30 |
75% |
New Hampshire |
60/Any |
None |
New Jersey |
60/Any |
None |
New Mexico |
65/5 Any/25 60/Age + service = 75 |
None |
New York |
62/5 55/30 |
None |
North Carolina |
65/5 60/25 Any/30 |
None |
North Dakota |
65/3 Age + service = 85 |
100% |
Ohio |
65/Any Any/30 |
100% |
Oklahoma |
62/10 Age + service = 90 |
None |
Oregon |
58/Any |
None |
Pennsylvania |
62/1 60/30 Any/35 |
None |
Rhode Island |
60/10 Any/28 |
80% |
South Carolina |
65/Any Any/30 |
None |
South Dakota |
65/3 55/Age + service = 85 |
None |
Table 6: (Continued)
STATE |
NORMAL RETIREMENT AGE/YEARS OF SERVICE |
LIMIT (% Final Average Salary) |
Tennessee |
60/5 Any/30 |
90% |
Texas |
65/5 60/20 Age + service = 80 |
None |
Utah |
65/4 Any/30 |
None |
Vermont |
62/ Any Any/30 |
50% |
Virginia |
65/5 50/30 |
100% |
Washington |
65/5 |
None |
West Virginia |
60/5 55/Age + service = 80 |
None |
Wisconsin |
65/Any 57/30 |
65% |
Wyoming |
60/Any Age + service = 85 |
None |
Source: 2000 Comparative Study of Major Public Employee Retirement Systems, Wisconsin Legislative Council.
Income Replacement Percentages
The percentage of a teacher's active duty salary his pension replaces is a function of his years of service, his final average salary, and his state's benefit formula. Table 7 ranks the 50 states according to percentage of salary a normal state teacher's pension would replace for a hypothetical teacher with a final salary of $ 50,000 and 30 years of service.
The ranking shows that, as expected, teacher pension systems that are not coordinated with Social Security replace a higher proportion of retirees' working income because their benefit formula assumes a retiree will not be able to supplement his pension with Social Security benefits.
The ranking also shows that Connecticut is tied with 13 other states for the rank of 14th in percentage of income replacement (60%). Thirteen states replace more and 23 states replace less income for the hypothetical teacher.
Table 7: Normal Teacher Pension and Salary Replacement Percentages for a Teacher with
30 years' service and a $ 50,000 Final Salary
State |
Annual Pension |
% Final Salary |
State |
Annual Pension |
% Final Salary |
Colorado* |
$ 37,500 |
75 |
Washington |
$ 30,000 |
60 |
Missouri* |
37,500 |
75 |
West Virginia |
30,000 |
60 |
Nevada* |
37,500 |
75 |
Maryland |
29,800 |
60 |
New Mexico |
35,250 |
71 |
Nebraska |
28,500 |
57 |
Kentucky* |
34,750 |
70 |
Mississippi |
28,438 |
57 |
Alaska* |
33,750 |
68 |
North Dakota |
28,200 |
56 |
Illinois* |
33,000 |
66 |
South Carolina |
27,300 |
55 |
Ohio* |
33,000 |
66 |
Delaware |
27,000 |
54 |
Texas* |
33,000 |
66 |
North Carolina |
27,000 |
54 |
Wyoming |
32,813 |
66 |
Kansas |
26,250 |
53 |
Arizona |
31,500 |
63 |
Minnesota* |
25,500 |
51 |
Rhode Island |
31,500 |
63 |
Virginia |
25,500 |
51 |
Alabama |
30,188 |
60 |
Montana |
25,050 |
50 |
California* |
30,000 |
60 |
New Hampshire |
25,050 |
50 |
Connecticut* |
30,000 |
60 |
New Jersey |
25,050 |
50 |
Georgia |
30,000 |
60 |
Oregon |
25,050 |
50 |
Idaho |
30,000 |
60 |
Vermont |
25,000 |
50 |
Iowa |
30,000 |
60 |
South Dakota |
24,375 |
49 |
Louisiana* |
30,000 |
60 |
Florida |
24,000 |
48 |
Maine* |
30,000 |
60 |
Wisconsin |
24,000 |
48 |
Massachusetts* |
30,000 |
60 |
Michigan |
22,500 |
45 |
New York |
30,000 |
60 |
Tennessee |
22,500 |
45 |
Oklahoma |
30,000 |
60 |
Arkansas |
19,575 |
39 |
Pennsylvania |
30,000 |
60 |
Hawaii |
18,750 |
38 |
Utah |
30,000 |
60 |
Indiana |
+16,500 |
*Not coordinated with Social Security
+This amount is supplemented by an annuity.
Source: Calculated from benefit formulas reported in 2000 Comparative Study of Major Public Employee Retirement Systems, Wisconsin Legislative Council.
JL: ts