Retaining Effective Teachers Policy
The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of July 1, 2010, the most recent date for which an actuarial valuation is available, Montana's pension system for teachers is 65.4 percent funded and has an amortization period of 49.5 years. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state more than 49 years to pay off its unfunded liabilities. Recent legislation reportedly reduces the amortization rate by 2.3 years, but an official valuation including its impact has yet to be released. Neither the state's funding ratio nor its amortization period meets conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
In addition, Montana commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 9.96 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 7.15 percent is not unreasonable, although it is very close to what is considered 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.
Montana Teachers' Retirement System, Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2010 http://www.trs.mt.gov/Publications/AnnualReports/FinancialReport2009-2010.pdf 2011 Legislative News, Teachers' Retirement System http://www.trs.mt.gov/2011%20TRS%20Legislative%20News%204-25-2011.pdf Montana Code Annotated 2011, 19-2-409 http://data.opi.mt.gov/bills/mca/19/2/19-2-409.htm
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of less than 30 years to allow more protection during financial downturns. However, Montana 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.
Montana declined to respond to NCTQ's analyses.