The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2015, the most recent date for which an actuarial valuation is available, North Dakota's pension system for teachers is 61.6 percent funded, an increase of 2.8 percentage points since NCTQ's last report. Its current pension debt is almost $13,000 per pupil throughout the state. It also has an amortization period of 29 years. This means that if the plan earns its assumed rate of return of 7.75 percent and makes its full actuarially determined contribution payments, it would take the state 29 years to pay off its unfunded liabilities. The state's funding ratio does not meet conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
In addition, North Dakota commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 12.75 percent and employee contribution rate of 11.75 percent are too high in light of the fact that local districts and teachers must also contribute 6.2 percent to Social Security. While these rates allow the state to pay off liabilities, it does so at a high cost, precluding North Dakota from spending those funds on other, more immediate means to retain talented teachers. Both the employer and employee contribution rates will return to 7.75 percent when the system reaches 90 percent funding, each more reasonable than the current rates.
North Dakota Teachers' Fund for Retirement, Actuarial Valuation and Review 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. North Dakota, however, 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 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.
North Dakota was helpful in providing information that enhanced this analysis.