The state should ensure that excessive resources are not committed to funding teachers' pension systems.
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.
Oregon Public Employees Retirement System, Tier 1/Tier 2 and OPSRP Pension Benefits, RHIA/RHIPA Retiree Medical Benefits, December 31, 2015 Actuarial Valuation
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.
Oregon was helpful in providing information that enhanced this analysis. Oregon also indicated that the funding level is 79 percent, including employer side accounts.
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.