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Indiana Teacher Retirement Fund 101

Posted by Indiana Retired Teachers Association on Oct 10, 2016 9:06:42 PM

Another Indiana General Assembly biennial budget is approaching, and once again the state’s financial health will be under the microscope.

Undoubtedly, teacher pensions will get another look. What that means to Indiana’s 144,000 active, inactive and retired teachers and their beneficiaries remains to be seen.

To help keep your retirement benefits in perspective, it’s helpful to know a little history about Indiana’s Teacher Retirement Fund and it’s more than $10.5 billion in assets.

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Here are answers to frequently asked questions about the state’s TRF:

How long has Indiana offered retirement benefits for teachers?

The Teachers Retirement Fund was created by the Indiana General Assembly in 1921. TRF manages and distributes the retirement benefit of educators in all public schools, as well as some private and charter schools and universities, throughout Indiana.

All legally qualified teachers who are regularly employed in the public school system of Indiana or in qualified positions at certain state institutions, as well as all TRF employees, must be members of TRF. A legally qualified substitute teacher may be a member of TRF with certain conditions.

How is it funded?

Indiana's pension program is known as a hybrid plan because it features both a modest employer-paid pension and an employee-owned but state-managed annuity savings account to which employees must contribute at least 3 percent of their annual salaries.

Read our in-depth guide: Retirement Guide for Indiana Teachers

Indiana’s local school district taxpayers invest 100 percent into their teachers’ retirement account. Active teachers also can contribute to a separate Annuity Account – up to 10 percent of their paychecks, either pre- or post-tax depending on which plan they select.

What is the General Assembly’s funding to retired teachers?

State appropriations to fund the Teachers Retirement Fund plan are set to grow 3 percent a year from $776.3 million in 2014 to an estimated $841 million in 2017 before peaking at $1.1 billion in 2029.

Required state funding then gradually will shift to a $2.6 billion Pension Stabilization Fund, made up in part of Hoosier Lottery profits.

Where does this money go?

The state's teacher retirement benefits are divided into two funds. One includes teachers hired before July 1, 1995, and was established by the state legislature as a pay-as-you-go plan. It is by definition not pre-funded, and annual pension payments are appropriated by the legislature.

The other plan includes teachers hired after June 30, 1995. It was established as an actuarially funded plan, meaning future liabilities are funded by contributions to the plan as a percentage of the member's salary as it is earned.

How are the fund’s investments managed?

The Teachers Retirement Fund, along with six other Indiana employee retirement programs, is managed by the Indiana Public Retirement System’s Board of Trustees. They must follow federal and state laws to invest the assets “solely in the interests of our members and beneficiaries,” according to its website.

With approximately $29.9 billion in assets under management at fiscal year-end 2015, the Indiana Public Retirement System is among the largest 100 pension funds in the United States.

Is there a safety net for the Teachers Retirement Fund?

Concerned about the risks of the pay-as-you-go funding, the General Assembly in 1995 established the Pension Stabilization Fund. It protects TRF retirees against any disruption in payments and to smooth out payments from the state as the Baby Boomer generation retires.

What is the INPRS Board’s approach to investing?

The Board works under a set of guiding principles for oversight and management of the Retirement Fund’s assets. The guiding principles includes policies on targeted rates of return, asset allocation, risk tolerance, portfolio diversification and preservation of capital.

State appropriations to fund that plan are set to grow 3 percent a year from $776.3 million in 2014 to an estimated $841 million in 2017 before peaking at $1.1 billion in 2029.

Required state funding then gradually will shift to the $2.6 billion pension stabilization fund, made up in part of Hoosier Lottery profits, that will cover pension benefits until there are no more participating retired teachers.

How can I monitor developments about the state’s retirement plan issues?

The Indiana Retired Teachers Association advocates for retired teachers at the General Assembly. We update members on our website and on our Facebook, LinkedIn and Twitter pages.

The Educator's Guide to Retiring with Purpose

Topics: Legislature

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