The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2010, the most recent date for which an actuarial valuation is available, Mississippi's pension system for teachers is 64.2 percent funded and has a 30-year amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 30 years to pay off its unfunded liabilities. While its amortization period meets requirements, Mississippi's funding level is too low. The state's system is not financially sustainable according to actuarial benchmarks.
In addition, Mississippi commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 12 percent and the employee contribution rate of 9 percent are too high, in light of the fact that local districts and teachers are contributing an additional 6.2 percent to Social Security.
The rates are determined by the board of trustees, and are based on its funding policy, which states that increases will be evaluated on an annual basis in order to maintain an amortization period of 30 years or less. While these rates allow the state to pay off liabilities within the required 30-year period, it does so at great cost, precluding Mississippi from spending those funds on other more immediate means to retain talented teachers.
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, Mississippi 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. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.
Mississippi recognized the factual accuracy of this analysis. The state added that any statements about what the plan should offer
to its participants are a matter of opinion and are best addressed by
state policy makers.
Mississippi also noted that on October 24, 2006, the Board of Trustees of the Public Employees' Retirement System of Mississippi (PERS) adopted a funding policy related to the funded status of PERS, which encompasses the employer contribution rate and the implementation of benefit enhancements. The funding goals include: to maintain a stable or increasing ratio of system assets to accrued liabilities, and eventually to reach a 100 percent funding ratio; to maintain adequate asset levels to finance the benefits promised to members; to develop a pattern of stable contribution rates when expressed as a percentage of member payroll as measured by valuations prepared in accordance with the principles of practice prescribed by the Actuarial Standards Board with a minimum employer contribution equal to the normal cost determined under the Entry Age Normal funding method; and to provide intergenerational equity for taxpayers with respect to system costs.
NCTQ commends the positive direction that the Board took in 2006. However, a system, that five years later is only 64.2 percent funded does not provide intergenerational equity, as taxpayers and new teachers will be paying for the benefits of current retirees while they see their own benefits reduced.