Pension Sustainability: Ohio

Retaining Effective Teachers Policy

Goal

The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Does not meet
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Ohio results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/OH-Pension-Sustainability-9

Analysis of Ohio's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Ohio's pension system for teachers is 59.1 percent funded and has an infinite amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, the state would never pay off its unfunded liabilities. Neither the state's funding ratio nor its amortization period meets conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.

In addition, Ohio commits excessive resources toward its teachers' retirement system. The mandatory employer contribution rate of 14 percent is slightly high. This rate is set by the State Teachers' Retirement Board. While part of this rate is used to pay off liabilities, it does so at great cost, precluding Ohio from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate of 10 percent is reasonable.

Citation

Recommendations for Ohio

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of 30 years or less to allow more protection during financial downturns. However, Ohio 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.

State response to our analysis

Ohio maintained that it is a non-Social Security state, and when compared with the combined rate of Social Security and the state pension plan in other states, it is at the mid-point.

Last word

NCTQ maintains that Ohio's employer contribution rate is slightly excessive and prevents districts from spending those funds on more immediate ways to attract and retain effective teachers. Many states contribute excessive resources to teacher pension plans, and thus being at the mid-point may not justify the state's current contribution levels. See Figure 121 for a state-by-state comparison including Social Security contributions and Figure 120 for a rationale on acceptable contribution levels.  

Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).