The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2015, the most recent date for which an actuarial valuation is available, Virginia's pension system for teachers is 69.2 percent funded, an increase of 3.4 percentage points since NCTQ's last report. Its current pension debt for teachers is $10,300 per pupil throughout the state. It also has an amortization period of 27 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 27 years to pay off its unfunded liabilities. Its funding ratio does not meet the recommended minimum standard, and the state's system is not financially sustainable according to actuarial benchmarks.
In addition, Virginia requires excessive resources to fund its teachers' retirement system. Combined, the current employer contribution rates of 14.66 percent to the defined benefit component and 1 percent to the defined contribution component are too high, in light of the fact that districts must also contribute 6.2 percent to Social Security. While this rate was established to allow the state to pay off liabilities within the required 30-year period, it does so at a high cost, precluding Virginia from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rates of 4 percent to the defined benefit plan and 1 percent to the defined contribution plan are reasonable.
Report on the Actuarial Valuation for Virginia Retirement System Prepared as of June 30, 2015
Ensure that the pension system is financially sustainable.
The state would be better off if its system was 95 percent funded to allow more protection during financial downturns. Virginia, however, should consider ways to improve its funding level without raising the contributions of local districts and teachers. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. Improving funding levels necessitates, in part, systemic changes in the state's pension system. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
Virginia did not respond to repeated requests to review this analysis.