Retaining Effective Teachers Policy
The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of December 31, 2009, the most recent date for which an actuarial valuation is available, North Carolina's teacher pension system is 95.9 percent funded and has a 9-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 nine years to pay off its unfunded liabilities, if it had any. Both levels are better than regulatory recommendations, and North Carolina's system is financially sustainable, according to actuarial benchmarks.
However, North Carolina commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 13.12 percent is 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.
State of North Carolina, Comprehensive Annual Financial Report, for the Fiscal Year Ended June 30, 2010 http://www.osc.nc.gov/financial/10CAFR/index.html North Carolina Statute, 135-8 http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML/BySection/Chapter_135/GS_135-8.html Legislative Digest, North Carolina Department of State Treasurer http://www.nctreasurer.com/NR/rdonlyres/250F0114-0005-41E6-A8D0-02A1CD6DCECA/0/RSDlegislativeDigestSept2011.pdf
Avoid committing excessive resources to the pension system.
While the state meets actuarial benchmarks for a financially sustainable system, it does so at great cost, precluding North Carolina from spending those funds on other, more immediate means to retain talented teachers. However, the state must be careful to maintain its funding level to allow for protection during financial downturns.
North Carolina recognized the factual accuracy of this analysis. However, the analysis has been updated subsequent to the state's review to reflect recent policy changes.