The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of August 31, 2015, the most recent date for which an actuarial valuation is available, Texas's pension system for teachers is 80.2 percent funded, a decrease of 0.6 percentage point since NCTQ's last report. Its current pension debt is $6,400 per pupil throughout the state. It also has an amortization period of 33.3 years. This means that if even the plan earns its assumed rate of return and makes its full actuarially determined contribution payments, the state will pay off its unfunded liabilities in 33.3 years. While the funding ratio meets the recommended minimum standards, its amortization period slightly misses its mark.
Texas does not commit excessive resources toward its teachers' retirement system. The mandatory employee and employer contribution rates to the defined benefit plan for FY 2017 are 7.70 percent. The employer rate, however, which experienced scheduled increases the last several years, is less than the actuarially determined amount of 7.92 percent required to paying down the system's unfunded liabilities over a 30-year period. This will raise costs in the future.
Teacher Retirement System of Texas, Actuarial Valuation Report for the Year Ending August 31, 2015.
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded to allow more protection during financial downturns. Rather than setting a fixed rate for employer contributions, the state should require employers to contribute at minimum the actuarially required amount in order to ensure that the burden of paying today's promises is not put off onto future generations. Statutory rates are based on assumptions about the future which may or may not be met. For instance, if future payroll growth falls below expectations, then contributions will fall short of the actuarially required contributions and will need to be made up down the line.
Texas was helpful in providing information that enhanced this analysis.