2015 Pensions Policy
The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of January 1, 2015, the most recent date for which an actuarial valuation is available, Massachusetts's pension system for teachers is 54.3 percent funded, a decrease of 1.4 percentage points since NCTQ's last report. Its current pension debt exceeds $21,100 per pupil throughout the state. It also has an amortization period of 23 years. This means that if the plan earns its assumed rate of return of 7.75 percent and makes its full actuarially determined contribution payments, it would take the state 23 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, Massachusetts's funding level is too low. The state's system is not financially sustainable according to actuarial benchmarks.
In addition, Massachusetts commits excessive resources toward its teachers' retirement system. The current employer contribution rate, which is paid by the state on behalf of local districts, of 18.9 percent is too high. The rate is set by law and is equivalent to the normal cost plus amortization payments, which must reduce the unfunded liability to zero by June 30, 2040. While this rate allows the state to pay off liabilities within the required 30-year period, it does so at a high cost, precluding Massachusetts from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate of 11 percent is reasonable as teachers do not make contributions to Social Security.
Massachusetts Teachers' Retirement System, Actuarial Valuation Report, January 1, 2016. Commonwealth of Massachusetts, Public Employee Retirement Administration Commission, Memorandum, Commonwealth Appropriation for Fiscal Year 2016. http://www.mass.gov/perac/docs/forms-pub/reports/appropriation-letters/commappropfy16.pdf
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, Massachusetts should consider ways to improve its funding level without raising the contributions of the state. 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.
Massachusetts did not respond to repeated requests to review this analysis.