The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of July 1, 2015, the most recent date for which an actuarial valuation is available, Minnesota's pension system for teachers is 77.1 percent funded, an increase of 5.5 percentage points since NCTQ's last report. Its current pension debt exceeds $6,800 per pupil throughout the state. It also has an amortization period over 22 years. This means that if the plan earns its assumed rate of return of 8 percent and makes its full actuarially determined contribution payments, it would take the state over 22 years to pay off its unfunded liabilities. Minnesota's funding ratio does not meet conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
Minnesota does not currently commit excessive resources toward its teachers' retirement system. The mandatory employee contribution rate to the defined benefit plan is 7.5 percent. Most employers contribute 7.5 percent under the Coordinated Plan. Though these rates are reasonable, even with teachers' and local districts' additional 6.2 percent contribution to Social Security, they are close to what is considered excessive. State statute requires that unfunded liabilities must be paid off by June 30, 2037, but these rates do not meet the annual required contributions to meet this amortization period. The combined annual required contribution to meet this amortization period is 17.87 percent, implying an approximate 2.9 percentage point deficiency.
Minnesota Teachers Retirement Association, Actuarial Valuation Report for fiscal year ended June 30, 2015.
Ensure that the pension system is financially sustainable.
The state would be better off if its system was more that 95 percent funded to allow protection during financial downturns. Minnesota should consider ways to improve its funding level without raising the contributions of districts and teachers above excessive levels. 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.
Minnesota was helpful in providing information that enhanced this analysis.