The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2010, the most recent date for which an actuarial valuation is available, New Hampshire's pension system for teachers is 58.5 percent funded and has a 26-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 26 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, New Hampshire's funding level is too low. The state's system is not financially sustainable according to actuarial benchmarks.
In addition, New Hampshire commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 10.7 percent is too high, in light of the fact that districts must also contribute 6.2 percent to Social Security. While this rate allows the state to pay off liabilities within a 26-year period, it does so at great cost, precluding New Hampshire from spending those funds on other, more immediate means to retain talented teachers. Formerly, districts pay 7.49 percent and the state pays 3.21 percent of the employer contribution rate; however, this cost-sharing provision was eliminated as of July 1, 2011. Districts may still receive some aid from the state, as recent legislation authorized the state to spend $3.5 million toward political subdivisions' employer contributions for teachers, police and firefighters for fiscal year 2012. The mandatory employee contribution rate to the defined benefit plan of 7 percent is reasonable.
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. However, New Hampshire 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.
The New Hampshire Retirement System did not respond to repeated requests to review NCTQ's analyses related to teacher pensions.