The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of December 31, 2009, the most recent date for which an actuarial valuation is available, Oregon's teacher hybrid pension plan is 83.2 percent funded and has an amortization period of 16 years. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 16 years to pay off its unfunded liabilities. Both levels are better than regulatory recommendations, and Oregon's system is financially sustainable according to actuarial benchmarks.
However, 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 employer contribution rate of 13.92 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 great cost, precluding Oregon from spending those funds on other, more immediate means to retain talented teachers. Employers are allowed to make lump sum contributions that adjust their contribution rates; the average adjustment from these lump sum payments decreases district pension payroll contributions to a more reasonable 8.39 percent. The mandatory employee contribution rate of 6 percent is reasonable.
The employer contribution rate for teachers participating in the now closed defined benefit system (those hired before August 29, 2003) is even more excessive. The current rate is 18.81; the rate is actuarially recommended to be 23.05 percent; however, the PERS Board's actuarial method places a "collar" on maximum increases allowed on employer contribution rates.
Actuarial Valuation Report, December 31, 2009, Oregon Public Employees Retirement System http://www.oregon.gov/PERS/docs/financial_reports/10-2010_mercer_valuation_report.pdf
Avoid committing excessive resources to the pension system.
Although the state is commended for having a system that is financially sustainable, 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 defined benefit system, the remaining members and unfunded liability still place a burden on the local districts.
Oregon was helpful in providing NCTQ with facts that enhanced this analysis.