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Pension Sustainability: Tennessee

Retaining Effective Teachers Policy

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Goal

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

Best Practice
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Tennessee results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/TN-Pension-Sustainability-9

Analysis of Tennessee's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Tennessee's teacher pension system is 90.6 percent funded and has a 20-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 20 years to pay off its unfunded liabilities. Both levels are better than regulatory recommendations, and Tennessee's system is financially sustainable, according to actuarial benchmarks.

Tennessee does not commit excessive resources toward its teachers' retirement system. The mandatory employee contribution rate to the defined benefit plan is 5 percent, and the mandatory employer contribution rate is 6.42 percent. Both of these rates are reasonable, considering that teachers and local districts are also contributing to Social Security.

Citation

Recommendations for Tennessee

State response to our analysis

Tennessee noted that further information on this issue can be reviewed in TN law (49-5-901 through 916).

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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).

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