The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of December 31, 2014, the most recent date for which an actuarial valuation is available, North Carolina's teacher pension system is 95.6 percent funded, an increase of 1.4 percentage points since NCTQ's last report. Its current pension debt is $2,000 per pupil throughout the state (about $1,000 per pupil after considering only classroom teachers). It also has a 12-year amortization period. This means that if the plan earns its assumed rate of return of 7.25 percent and makes its full actuarially determined contribution payments, it would take the state 12 years to pay off its unfunded liabilities. Both the funded ratio and amortization period are better than regulatory recommendations, and North Carolina's system is financially sustainable, according to actuarial benchmarks.
North Carolina, however, commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 8.47 percent is somewhat excessive, in light of the fact that local districts also contribute to Social Security. The employer contribution is paid by the state, which lifts the burden from local districts, but it still uses funds that could have been used in more immediate ways to attract and retain effective teachers. The employer rate is determined according to statutory requirements, which mandate that the employer contribution rate must equal the cost to fund this year's expenses (the normal cost) plus any amount needed to amortize any unfunded liabilities. The mandatory employee contribution rate to the defined benefit plan of 6 percent is reasonable.
Teachers’ and State Employees’ Retirement System of North Carolina, Report on the Seventieth Annual Valuation Prepared as of December 31, 2014.
While the state meets actuarial benchmarks for a financially sustainable system, it does so at a somewhat high cost, precluding North Carolina from spending those funds on other, more immediate means to retain talented teachers. The state, however, must be careful to maintain its funding level to allow for protection during financial downturns. The state might consider systemic change such as directly tying benefits to contributions.
North Carolina did not respond to repeated requests to review this analysis.