Pension Sustainability: Delaware
Pensions Policy
Analysis of Delaware's policies
As of June 30, 2015, the most recent date for which an actuarial valuation is available, Delaware's teacher pension system is 91.6 percent funded. Its current pension debt exceeds $5,700 per pupil throughout the state. Delaware also has a 20-year amortization period. This is due to an accounting method, however, in which Delaware uses an open 20-year amortization period, meaning that the amortization period is reset to 20 years every year. Thus, the unfunded liability is never fully amortized. Under a closed amortization method, if the plan earns its assumed rate of return of 7.20 percent and makes its full actuarially determined contribution payments, it would take the state 20 years to pay off its unfunded liabilities. Both levels are better than regulatory recommendations, and Delaware's system is financially sustainable according to actuarial benchmarks.
Delaware, however, commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 9.58 percent is excessive, in light of the fact that the state must also contribute to Social Security. While this rate allows the state to keep its system well funded and pay off liabilities, it does so at a high cost, precluding Delaware from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate to the defined benefit plan of 5 percent of income greater than $6,000 is reasonable.
Recommendations for Delaware
Avoid committing excessive resources to the pension system.
While the state meets actuarial benchmarks for a financially sustainable system, it does so at a high cost, precluding Delaware from spending those funds on other, more immediate means to retain talented teachers. The state should consider decreasing employer contributions to allow the state to spend those funds on other recruitment and retention strategies. However, it must be careful to maintain its funding level to allow for protection during financial downturns.
State response to our analysis
Delaware did not respond to repeated request to review this analysis.
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Delaware
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Delivering Well Prepared Teachers
- Admission into Teacher Preparation
- Elementary Teacher Preparation
- Elementary Teacher Preparation in Reading Instruction
- Elementary Teacher Preparation in Mathematics
- Early Childhood
- Middle School Teacher Preparation
- Secondary Teacher Preparation
- Secondary Teacher Preparation in Science and Social Studies
- Special Education Teacher Preparation
- Special Education Preparation in Reading
- Assessing Professional Knowledge
- Student Teaching
- Teacher Preparation Program Accountability
Expanding the Pool of Teachers
Identifying Effective Teachers
- State Data Systems
- Evaluation of Effectiveness
- Frequency of Evaluations
- Tenure
- Licensure Advancement
- Equitable Distribution
Retaining Effective Teachers
Exiting Ineffective Teachers
Pensions
Research rationale
Teacher salaries are just one part of the compensation package that teachers receive. Virtually all teachers are also entitled to a pension, which, upon vesting, provides compensation for the rest of their lives after retirement. In an era when retirement benefits have been shrinking across industries and professions, teachers' generous pensions remain fixed. In fact, nearly all states continue to provide teachers with a defined-benefit pension system, an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers.
Under defined benefit systems, states have made an obligation to fund fixed benefits for teachers at retirement. However, the financial health and sustainability of many states' systems are questionable at best. Some systems carry high levels of unfunded liabilities, with no strategy to pay these liabilities down in a reasonable period, as defined by standard accounting practices. Without reform, these systems are a house of cards, vulnerable to collapse as funding cannot keep up with promised benefits. And it is taxpayers who will have to pay if it all tumbles down.
Pension plans disadvantage teachers early in their careers by overcommitting employer resources to retirement benefits.
Pension Sustainability: Supporting Research
NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.