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, Iowa's pension system for regular members, including teachers, is 82.7 percent funded, an increase of 2.5 percentage points since NCTQ's last report. Its current pension debt exceeds $10,800 per pupil throughout the state. It also has a 26-year amortization period. This means that if the plan earns its assumed rate of return of 7.5 percent and makes its full actuarially determined contribution payments, it would take the state 26 years to pay off its unfunded liabilities. Iowa's system is financially sustainable according to actuarial benchmarks.
Iowa commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 8.93 percent is slightly excessive, considering that districts must also contribute 6.2 percent to Social Security. The mandatory employee contribution rate to the defined benefit plan of 5.95 percent is reasonable. Legislation only recently allowed the pension system to raise contribution rates to meet actuarial recommendations; however, rates can only increase by a total of 1 percent for employee and employer contributions combined (higher than the previous restriction of 0.5 percent total each year).
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded to allow more protection during financial downturns. However, Iowa 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. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
Iowa was helpful in providing information that enhanced this analysis.