Millions of Public Sector Workers Risk Retirement Income Shortfall Without More Guaranteed Income, TIAA Institute Analysis Shows
Analysis of retirement systems across 50 states offers state lawmakers a framework to help state workers get to an 80% pre-retirement income replacement target
NEW YORK, Nov. 18, 2025 /PRNewswire/ -- New TIAA Institute research finds that while many state retirement plans help workers achieve financial security in retirement, several states fall short, particularly those that don't offer Social Security benefits. This underscores the important role guaranteed lifetime income plays in retirement planning.
Assuming a 30-year career, most state systems that pair a defined benefit (DB) plan with Social Security reach the industry benchmark of an 80% Income Replacement Ratio (IRR). However, most hybrid, cash balance, and defined contribution (DC) plans would likely fall short of this benchmark even with Social Security. These findings were shared at TIAA's FUTUREWISE Retirement Security Forum in Washington, D.C.
The analysis, "The Common Thread: What's Woven into the Most Successful State Retirement Plans?" finds that achieving the industry's 80% IRR benchmark will require specific interventions to protect public sector state workers from the risk of running short of money in retirement.
"Public sector employment has changed dramatically over the last 20 years, with workers now more mobile and states offering more retirement plan options beyond traditional pensions," said Surya Kolluri, Head of TIAA Institute. "Our analysis finds that while nearly all low-earning public workers will see their needs met, only one-third of plans provide sufficient income for higher income earners, who receive proportionally less replacement from Social Security. Generating adequate retirement income often comes down to a single factor: access to guaranteed lifetime income through multiple sources."
Key Findings
The analysis examined four primary retirement plan designs—defined benefit (DB), hybrid (DB + DC), cash balance, and defined contribution (DC) plans—and found significant disparities in their ability to meet the 80% income replacement target:
- Defined Benefit Plans: Without Social Security, none of the 46 DB plans analyzed reached the 80% replacement threshold. When Social Security is included, nearly all plans meet the needs of low earners, but only one-third provide sufficient income for high earners who receive less proportional income replacement from Social Security.
- Hybrid Plans: The strongest hybrid plans offer guaranteed income through their DB component, DC component, and Social Security. However, hybrid plans that forgo lifetime income access in their DC portion fall short of the 80% target.
- Cash Balance Plans: Four states currently offer these plans. To meet income replacement goals, they require returns above guaranteed minimum floors (closer to 7% than the typical 4% minimum) and combined employer-employee contribution rates of at least 12%.
- Defined Contribution Plans: Now offered in 13 states and serving as the primary plan in four states, DC plans require 12-15% combined contribution rates and access to in-plan lifetime income options to achieve adequate replacement rates with Social Security. For states that do not participate in Social Security, the shared contribution rate would need to be at least 22%. The common 4% withdrawal rule alone cannot provide 80% income replacement.
The Path Forward
Earlier this year, the National Council of Insurance Legislators (NCOIL) called on states to review their retirement offerings to ensure they provide adequate lifetime income. This research provides the roadmap to making this goal a reality.
The strongest hybrid plans offer ample access to guaranteed retirement income: access to lifetime income through a DB component, a DC component with lifetime income options, and Social Security coverage. Plans incorporating these three elements generally provide 80% income replacement to median and low earners even if employees do not annuitize all their savings.
For traditional DB plans without Social Security, auto-enrolling employees in supplemental 457 deferred compensation savings plans with lifetime income access can bridge the gap to the 80% replacement benchmark.
Cash balance plans can meet income replacement goals by providing returns above their guaranteed minimum floors and maintaining combined contribution rates of 12%.
For the growing number of states offering defined contribution plans as a primary option, success requires 12-15% combined contribution rates paired with in-plan lifetime income options that allow even partial annuitization of savings.
"State policymakers now have a proven framework to strengthen retirement security for millions of public servants. The solution lies in providing access to guaranteed lifetime income through multiple sources," said Bret Hester, Chief Legal Officer, TIAA. "State legislators and pension administrators have a real opportunity to assess their current systems against these benchmarks, identify gaps, and make lifetime income solutions available in multiple forms for public-sector workers. The roadmap exists, and the public servants who educate our children and serve our communities deserve retirement security that matches their dedication."
About the Research
The TIAA Institute study examined 85 major retirement systems across all 50 states, representing four primary plan designs: traditional defined benefit pensions (35+ states), hybrid plans (12 states), cash balance plans (4 states), and defined contribution plans (13 states, primary plan in 4).
About TIAA Institute
The TIAA Institute* is a think-tank within TIAA, conducting cutting-edge research in the areas of financial literacy and longevity literacy, lifetime income, retirement plan design and behavioral finance in the context of retirement. The Institute provides consulting services for higher education and the broader nonprofit sector. For more information, visit www.tiaainstitute.org.
About TIAA
TIAA is a leading provider of more secure retirements and outcome-focused investment solutions to millions of people and thousands of institutions.i It paid more than $5.9 billion in lifetime income to retired clients in 2024ii and has $1.5 trillion in assets under management (as of 09/30/2025).iii
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TIAA Institute is a division of Teachers Insurance and Annuity Association of America (TIAA), New York, NY.
©2025 Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, New York, NY
i. | Based on data in PLANSPONSOR's 2025 DC Recordkeeping Survey published June 25, 2025. |
ii. | As of December 31,2024, TIAA paid out $5.9B in total annuity income. This figure represents all annuity income, including guaranteed and additional amounts, for all of TIAA's annuity products. |
iii. | As of September 30, 2025, assets under management across Nuveen Investments affiliates and TIAA investment management teams are $1,487 billion. |
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SOURCE TIAA Institute