The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2010, the most recent date for which an actuarial valuation is available, Arkansas's pension system for teachers is 73.8 percent funded and has a 52-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 52 years to pay off its unfunded liabilities. Neither Arkansas's funding ratio nor its amortization period meets conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
In addition, Arkansas commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 14 percent is too high, in light of the fact that local districts must also contribute 6.2 percent to Social Security. This rate is set by statute and may not exceed 14 percent. The mandatory employee contribution rate to the defined benefit plan of 6 percent is reasonable.
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of less than 30 years to allow more protection during financial downturns. However, Arkansas should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.
Arkansas recognized the factual accuracy of this analysis.