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, Utah's teacher defined benefit pension plan is 85.4 percent funded, an increase of 7.5 percentage points since NCTQ's last report. Its current pension debt is almost $5,000 per pupil throughout the state. It also has an amortization period of 20 years. This is due to an accounting method, however, in which Utah uses an open 20-year amortization period, meaning that the amortization period is reset to 20 years every year. Thus, the unfunded liability is never fully amortized. Under a closed amortization schedule, if the plan earns its assumed rate of return of 7.50 percent and makes its full actuarially determined contribution payments, it would take the state 20 years to pay off its unfunded liabilities. While not ideal, both levels are better than regulatory recommendations, and Utah's system is financially sustainable according to actuarial benchmarks.
Utah, however, commits excessive resources toward its teachers' retirement system. The current employer contribution rate to the defined benefit plan of 17.70 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 liabilities relatively quickly, it does so at great cost, precluding Utah from spending those funds on other, more immediate means to retain talented teachers. Teachers are not required to contribute to the pension system.
Utah closed its defined benefit plan to new employees as of July 1, 2011. All employees hired after this date will have a choice between a defined contribution plan and a hybrid plan. As set by statute, the employer contribution to both of these plans is 10 percent, plus the employer must contribute toward the amortization of the old plan. Any additional costs of the new plan that are beyond 10 percent will be paid by the employee. This employee rate is still too high, in light of the fact that local districts must also contribute 6.2 percent to Social Security.
Utah Retirement Systems, Comprehensive Annual Financial Report, for the Year Ended December 31, 2015.
Avoid committing excessive resources to the pension system.
The state is commended for maintaining a system that is financially sustainable. Utah, however, should consider decreasing employer contributions to allow local districts to spend those funds on more immediate recruitment and retention strategies. In addition, Utah should ensure that its new system is financially sustainable without demanding excessive contributions from employers.
Utah did not respond to repeated requests to review this analysis.