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, Ohio's pension system for teachers is 69.3 percent funded, an increase of 3.0 percentage points since NCTQ's last report. Its current pension debt exceeds $17,600 per pupil throughout the state. It also has a 28.4-year amortization period, meaning 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 28.4 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.
The mandatory employer contribution rate of 14 percent is slightly high. This rate is set by the State Teachers' Retirement Board. While this rate is sufficient to cover what is needed to adequately amortize unfunded pension liabilities, it does so at a high cost, precluding Ohio from spending those funds on other, more immediate means to retain talented teachers. Given that employers and employees do not contribute to Social Security, the mandatory employee contribution rates of 13 percent for the defined benefit plan and 1.5 percent to the combined plan are reasonable.
State Teachers Retirement System of Ohio, 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. Ohio, however, should consider ways to improve its funding level without raising the contributions of school districts and teachers. This will be difficult, though, as 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.
Ohio was helpful in providing information that enhanced this analysis.