The state should ensure that excessive resources are not committed to funding teachers' pension systems.
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.
Delaware State Employees' Pension Plan, Actuarial Valuation Report as of June 30, 2015.
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.
Delaware did not respond to repeated request to review this analysis.