The Common Thread: What's Woven into the Most Successful State Retirement Plans?

New TIAA research examines 85 major retirement systems across all 50 states to assess their ability to achieve the industry's key benchmark of replacing 80% of pre-retirement income. This comprehensive analysis reveals the specific design elements and interventions that help ensure adequate lifetime income for public sector workers and teachers.

Summary

The research identifies four primary plan designs—defined benefit (DB), hybrid, cash balance, and defined contribution (DC)—and reveals that no single approach guarantees success. Instead, achieving the 80% income replacement target depends on specific design elements working together. Social Security plays a critical role, with DB plans that exclude it falling short of the target across all earning levels. The strongest plans combine multiple sources of guaranteed lifetime income: for hybrid plans, this means Social Security plus both DB and DC components with annuitization options. Cash balance plans require returns above minimum guarantees and combined contribution rates of at least 12%. DC plans need lifetime income access with 12-15% combined contribution rates. As public sector employment evolves and workers become more mobile, ensuring access to lifetime income in multiple forms remains essential for retirement security.

Key insights

• Without Social Security, no defined benefit plan in the study reaches the 80% income replacement target on its own.
• The strongest hybrid plans act as "triple-deckers," providing lifetime income through three sources: Social Security, a DB component, and an annuitized DC component.
• For DC plans to provide adequate income replacement, partially or fully annuitizing retirement savings significantly increases the likelihood of meeting the 80% target compared to the traditional 4% withdrawal rule alone.
• States that don't include Social Security (20% of plans studied) face substantially higher barriers, requiring DC contribution rates of at least 22% for standalone plans.
• Small design changes create big impacts: reducing a benefit multiplier by just one percentage point can drop income replacement from 75% to 48%.

Methodology

The research analyzed 85 major retirement systems from every state, examining four primary plan designs: defined benefit plans (the primary source in more than 35 states), hybrid plans (available in a dozen states), cash balance plans (offered by four states), and defined contribution plans (offered in 13 states, primary in four). The analysis assessed each system's ability to replace 80% of pre-retirement income across different earning levels, assuming 30 years of service, and evaluated the impact of Social Security inclusion, benefit multipliers, contribution rates, and access to lifetime income options.