The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2011, the most recent date for which an actuarial valuation is available, Oklahoma's pension system for teachers is 56.7 percent funded and has an amortization period of 22 years. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 22 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, Oklahoma's funding level is below the conventionally recommended minimum, and the state's system is not financially sustainable according to actuarial benchmarks.
In addition, Oklahoma commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 14.5 percent is extremely high, in light of the fact that districts must also contribute 6.2 percent to Social Security. The 14.5 percent is split with the local districts paying 9.5 percent and the state paying 5 percent. While this is rate is intended to allow the state to pay off liabilities, it does so at great cost, precluding Oklahoma from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate to the defined benefit plan of 7 percent is reasonable, although close to what is considered excessive, in light of the fact that teachers must also contribute 6.2 percent to Social Security.
Teachers' Retirement System of Oklahoma, Annual Actuarial Valuation as of June 30, 2011 http://www.ok.gov/TRS/documents/June%2030%202011%20Actuarial%20Report.pdf
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, Oklahoma 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.
Oklahoma was helpful in providing NCTQ with facts that enhanced this analysis.