Retaining Effective Teachers Policy
The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2009, the most recent date for which an actuarial valuation is available, New York's teacher pension system is 103.2 percent funded and has a 30-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 30 years to pay off its unfunded liabilities, if it had any. Both levels are better than regulatory recommendations, and New York's system is financially sustainable according to actuarial benchmarks.
However, New York does commit excessive resources toward its teachers' retirement system. The current employer contribution rate of 11.11 percent slightly 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 cost, precluding New York from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate of 3.5 percent is reasonable.
New York State Teachers' Retirement System, Comprehensive Annual Financial Report, for the Fiscal Year Ended June 30, 2010 http://www.nystrs.org/main/library/AnnualReport/2010CAFR.pdf
Avoid committing excessive resources to the pension system.
The state is commended for having a system that is over 100 percent funded. However, in light of this overfunding, the state should consider decreasing employer contributions to allow the state and local districts to spend those funds on more immediate recruitment and retention strategies.
New York was helpful in providing NCTQ with facts that enhanced this analysis. In addition, the state noted that the employer contribution rate is determined annually in accordance with an actuarial valuation of system assets and liabilities, following appropriate actuarial procedures and standards of practice.
The system is not funded in accordance with a 30-year amortization, as the NCTQ analysis states. For funding purposes the system uses the aggregate actuarial funding method. This method does not establish a separate unfunded accrued liability. The funded ratio provided as of June 30, 2009 equal to 103.2 percent is accurate. As of June 30, 2010, this funded ratio is equal to 100.3 percent. These ratios are calculated in accordance with Governmental Accounting Standards Board requirements.
This analysis is based on the most recent published reports that are available to the public. The June 30, 2010, funded ratio was not included in the 2010 Comprehensive Annual Financial Report.