Pension Sustainability: Iowa

Retaining Effective Teachers Policy


The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Meets goal in part
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Iowa results. State Teacher Policy Database. [Data set].
Retrieved from:

Analysis of Iowa's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Iowa's pension system for teachers is 80.8 percent funded and has a 34-year amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 34 years to pay off its unfunded liabilities. While its funding ratio meets the recommended minimum standard, the amortization period is just above the recommended 30-year period. The state's system is not financially sustainable according to actuarial benchmarks.

In addition, Iowa commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 8.07 percent is slightly excessive, considering that districts must also contribute 6.2 percent to Social Security. The mandatory employee contribution rate to the defined benefit plan of 5.38 percent is reasonable. Legislation only recently allowed the pension system to raise contribution rates to meet actuarial recommendations; however, rates can only increase by a total of 1 percent for employee and employer contributions combined (higher than the previous restriction of 0.5 percent total a year).  


Recommendations for Iowa

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of less than 30 years to allow more protection during financial downturns. However, Iowa should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.

State response to our analysis

Iowa acknowledged the factual accuracy of statements related to funding ratio, years to amortize, and amount paid in contributions. However, the state indicated it could not say the same as to whether the contribution rate is too high given the value of the guaranteed lifetime benefit that is earned. Also, Iowa disagreed that the system is not sustainable.

Last word

NCTQ maintains that the employer contribution is slightly excessive and may grow to be even more burdensome for district budgets as rates increase to lower the system's amortization period. The amortization period is too long according the GASB standards, which suggest a 30-year amortization period.

Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).