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, Maryland's pension system for teachers is 71.9 percent funded, an increase of 4.8 percentage points since NCTQ's last report. Its current pension debt exceeds $12,600 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 7.55 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, Maryland's funding level is too low. The state's system is not financially sustainable according to actuarial benchmarks.
In addition, Maryland commits excessive resources toward its teachers' retirement system, especially in light of the fact that local districts and teachers must also contribute 6.2 percent to Social Security. The current employer contribution rate of 16.55 percent, which is paid by the state rather than local districts, is too high. The rate is established annually by the board of trustees based on an annual actuarial valuation. The teacher contribution rate of 7 percent is reasonable.
Maryland State Retirement and Pension System, Actuarial Valuation Report as of June 30, 2015.
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, Maryland should consider ways to improve its funding level without raising the contributions of the state 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.
Maryland had no comment on this goal.