Indiana’s long-standing commitment to education is something it can be proud of. Indiana was the first state in the country to designate a public school system, solidifying its future commitment to teachers in Indiana for years and years to come. Indiana Teacher Retirement is an important part of that commitment and has been funding Indiana’s retired teachers since 1937.
Retiring in Indiana
When you are employed in an Indiana public school, you will have to join the Indiana State Teachers’ Retirement Fund. It was created in 1921.
The Teachers’ Retirement Fund is one of the largest and most successful state-run retirement funds in America. It currently has over 162,000 active and retired members managing approximately $9.3 billion dollars worth of assets that are allocated through monthly payments to teachers once they reach normal retirement age.
Indiana teachers can qualify for retirement if they meet any of the following qualifications:
- 65 years of age with ten years of service
- Between 60 and 64 years of age with 15 years of service
- Between ages 55 and 59 years of age, and service years together total 85
The TRF is a program that provides benefits to retired teachers. It has two main programs: the Annuity Savings Account and the monthly pension system.
Teachers have the opportunity to invest in a retirement fund through their Annuity Savings Account. The 3% contribution is taken from monthly earnings, which grows over time, and does not contribute to pensions that are funded by state and employer contributions only.
When you reach retirement age and retire, the monthly payments from your annuity savings account will be waiting for you. In addition to these other benefits, you will also get money from the pension system.
How Does Teacher Retirement Work in Indiana?
Teachers in Indiana are fortunate to be a part of the state’s public retirement system, which includes not only teachers but all governmental employees.
Though teachers in Indiana have a choice about their retirement plan, new teachers are by default enrolled in the Teachers’ Retirement Fund Hybrid Plan. This combines elements of both traditional pensions and defined contribution plans to be more flexible for different needs. Or, new teachers can select Indiana’s My Choice: Retirement Savings Plan. For new hires, they must make their retirement plan selection within 60 days of their start date.
Although some parts of Indiana’s retirement plan are different, the basic structure is like other states. Unlike regular retirement funds, teacher’s contributions and those made on their behalf by the state or school district do not determine how much money they have in their pension when they retire.
Even though these contributions are invested in the market, the pension wealth component of this hybrid plan is not made from the returns on investments. Instead, the pension amount is determined by a formula. It’s based on the years of service and final salary.
How Does Indiana’s My Choice: Retirement Savings Plan Work?
In this traditional defined contribution (DC) plan, the employee and employer annually contribute a share of their salary to fund it. The worker’s retirement fund is determined by those contributions made as well as the interest that has been earned from them.
Each year, a teacher contributes at least 3 percent and no more than 10% of their salary to the fund. The employer contributions are 5.3% yearly. Teachers only vest into the system gradually, which means they’re eligible for shares based on years with experience in teaching.
After completing one year, a new teacher is vested in 20 percent of employer contributions. After that, they are vested in an additional 20% each following year and five years later are fully vested.
Indiana’s My Choice plan is designed to be fully portable. This means that teachers who leave Indiana can bring all of their retirement funds with them, no matter where they are teaching. Teachers are not able to transfer out of one state’s retirement plan to another, which may result in lower earnings over the course of their careers if they move across borderlines.
How Does Indiana’s Hybrid Plan Work?
Teachers who choose to join Indiana’s Hybrid plan, or are enrolled into the system by default, contribute at least 3% and no more than 10% of their salary annually to the fund. Their employer contributes 5.5%. As a result, teachers typically contribute approximately 8.5 to 15.5% of their salary to their retirement account each year.
However, when a teacher retires, the value of their DB plan is calculated by a formula that takes into account years of service and how much they made the final year they were working.
Under the Hybrid plan, teachers vest for DB after ten years of service. But unlike My Choice, where they can make their own contributions across state lines with them when leaving teaching, this is only partially portable because it doesn’t allow you to bring all your accrued benefits, which employers have matched over time.
How Are Teacher Pensions Calculated in Indiana?
The pension wealth you receive from your school district will be calculated based on how many years of service you have. But it’s important to note that Indiana assesses an educator’s final salary using their highest 5-year average salary.
For example, after teaching in public schools for 25 years and achieving an average annual salary of $70,000, you are qualified to receive 27.5% of your final year’s income, like retirement benefits.
For example, those who work for 25 years with a final average salary of $70,000 would be eligible for an annual pension benefit worth 27.5 percent of their final salary. But as noted, the DB plan is only a small part of a teacher’s retirement options under the hybrid plan.
1.1% Multiplier x Years of service x Avg. highest five years of salary
How Much Does Indiana’s Pension System Cost?
As they work, teachers and their employers should contribute to the plan. The state legislature places those contribution rates, which can change year-to-year depending on current economic conditions. In 2018, teachers paid at least 3 percent of their paycheck to the pension fund. The state also paid 7.5 percent. In total, 10.5% of a teacher’s salary went to the Indiana Teacher’s Pension Fund.
However, not all of that investment goes toward benefits for retired teachers. While 3% of a teacher’s contribution is for benefits, the state contributes only 5% toward benefits. The remaining 2.5% is to pay down the pension plan’s unfunded liabilities.
The hybrid retirement system in Indiana provides the greatest benefits to teachers who stay longest while leaving everyone else with inadequate pension plans. Considering the commitment to education in Indiana, teachers should consider how they plan for retirement when participating in the state’s hybrid plan.
Indiana has a teacher retirement plan that is the best in the nation for teachers. The state provides an excellent pension and health care package to public school educators, which makes them more likely to stay put once they are hired.
If you are a teacher in Indiana, then you’ll be happy to know that the state offers comprehensive retirement planning services and insurance benefits. The state of Indiana is making sure that teachers have everything they need for their future!