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, New York's teacher pension system is 94.2 percent funded. Its current pension debt is over $2,200 per pupil throughout the state. It also has a 30-year amortization period. This means that if the plan earns its assumed rate of return and makes its full actuarially determined contribution payments, it would take the state 30 years to pay off its unfunded liabilities. By its own accounting, both levels are better than regulatory recommendations, and New York's system is financially sustainable according to actuarial benchmarks. It should be noted, however, that NYSTRS uses the Aggregate Cost Method, which does not separately identify nor separately amortize the UAAL. Thus, its actuarial valuation does not report a remaining amortization period. Most other states, on the other hand, explicitly calculate the amortization components of employer contributions and disclose the number of years remaining for amortizing its pension debt. Reporting the remaining amortization period for its unfunded liabilities would improve transparency for the State's constituents.
New York, however, does commit excessive resources toward its teachers' retirement system. The current employer contribution rate of 11.72 percent (applied to 2016-17 member salaries) exceeds recommended levels, in light of the fact that local districts must also contribute 6.2 percent to Social Security. While this rate enables the state to fully fund its system, it does so at a high cost, precluding New York from spending those funds on other, more immediate means to retain talented teachers. Employee contributions depend on salary. The contribution rate is 3.0 percent if salary is less than or equal to $45,000; 3.5 percent if salary is between $45,000 and $55,000; 4.5 percent if salary is between $55,000 and $75,000; 5.75 percent if salary is between $75,000 and $100,000; and 6.0 percent if salary is greater than $100,000. These rates are reasonable.
Avoid committing excessive resources to the pension system.
New York would be better off if its system was over 95 percent. The state, however, 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 other pension goals in this analysis provide suggestions for pension system structures that are both sustainable and fair.
New York was helpful in providing information that enhanced this analysis. The state also asserted that its contribution rates are reasonable. In addition, New York noted that "as stated in prior response letters, NYSTRS is not in agreement with several of the NCTQ goals."