Pension Sustainability: Oregon
Pensions Policy
Analysis of Oregon's policies
As of December 31, 2015, the most recent date for which an actuarial valuation is available, Oregon's pension plan is 70.3 percent funded, a decrease of 25.7 percentage points since NCTQ's last report. Its current unfunded actuarial liability (including employer side accounts) is $15,527 per pupil throughout the state. It also has an amortization period of 20 years. 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 20 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, Oregon's funding level is below the conventionally recommended minimum, and the state's system is not financially sustainable according to actuarial benchmarks.
Oregon commits excessive resources toward its teachers' retirement system. These rates are set by the Public Employees' Retirement System Board based on actuarial calculations. The current biennium average employer base contribution rate for school districts of 21.19 percent is too high, in light of the fact that local districts must also contribute 6.2 percent to Social Security. While this rate allows the state to pay off its liabilities within regulatory limits, it does so at a high cost, precluding Oregon from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate of 6 percent is reasonable.
Recommendations for Oregon
Avoid committing excessive resources to the pension system.
The state would be better off if its system was over 95 percent funded to allow more protection during financial downturns. Oregon should consider decreasing employer contributions to allow local districts to spend those funds on more immediate recruitment and retention strategies. In addition, while the state is commended for closing its financially unsustainable Tier One and Tier Two defined benefit programs, the remaining members and unfunded liability still place a burden on the local districts.
State response to our analysis
Oregon was helpful in providing information that enhanced this analysis. Oregon also indicated that the funding level is 79 percent, including employer side accounts.
Last word
According to the valuation report, "Side accounts are the result of employer supplemental deposits, typically financed through a pension obligation bond." Therefore, the number reported in this analysis does not include side accounts.
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Oregon
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Delivering Well Prepared Teachers
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- Early Childhood
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Identifying Effective Teachers
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Retaining Effective Teachers
Exiting Ineffective Teachers
Pensions
Research rationale
Teacher salaries are just one part of the compensation package that teachers receive. Virtually all teachers are also entitled to a pension, which, upon vesting, provides compensation for the rest of their lives after retirement. In an era when retirement benefits have been shrinking across industries and professions, teachers' generous pensions remain fixed. In fact, nearly all states continue to provide teachers with a defined-benefit pension system, an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers.
Under defined benefit systems, states have made an obligation to fund fixed benefits for teachers at retirement. However, the financial health and sustainability of many states' systems are questionable at best. Some systems carry high levels of unfunded liabilities, with no strategy to pay these liabilities down in a reasonable period, as defined by standard accounting practices. Without reform, these systems are a house of cards, vulnerable to collapse as funding cannot keep up with promised benefits. And it is taxpayers who will have to pay if it all tumbles down.
Pension plans disadvantage teachers early in their careers by overcommitting employer resources to retirement benefits.
Pension Sustainability: Supporting Research
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.