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, Montana's pension system for teachers is 67.5 percent funded. Its current pension debt exceeds $12,000 per pupil throughout the state. It also has an amortization period of 26 years. This means that if the plan earns its assumed rate of return and makes its full actuarially determined contribution payments, it would take the state 26 years to pay off its unfunded liabilities. While Montana's amortization period is below the standard 30-year period, its funding level is too low. The state's funding ratio does not meet conventional standards, and the system is not financially sustainable.
In addition, Montana commits excessive resources toward its teachers' retirement system. School districts contribute 8.67 percent while the state contributes 2.49 percent from the general fund. The current combined employer contribution rate of 11.16 percent is too high, in light of the fact that local districts and teachers are also contributing to Social Security. The current employee contribution rate of 8.15 percent is also excessive. The employer contribution is a combined contribution from local districts and the state. The Montana constitution requires that each pension system be funded on an actuarially sound basis, which means contributions to the systems must fund the full actuarial cost. For defined benefit systems, this cost is defined as the cost to fund this year's expenses (the normal cost) plus any amount needed to amortize any unfunded liabilities over a period no more than 30 years.
Teachers' Retirement System, State of Montana. Actuarial Valuation as of July 1, 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, though the State is commended for taking measures aimed at achieving 90 percent funding. Montana, however, should consider other 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 and crowd out funding for other areas in education. 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.
Montana was helpful in providing information that enhanced this analysis.