The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2009, the most recent date for which an actuarial valuation is available, Virginia's pension system for teachers is 80.2 percent funded and has an amortization period of over 30 years. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state more than 30 years to pay off its unfunded liabilities. Its funding ratio barely meets 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. The current employer contribution rate of 8.81 percent is 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 great cost, precluding Virginia from spending those funds on other, more immediate means to retain talented teachers. Virginia's amortization period is over 30 years because it suspended employer payments to the pension system for the fourth quarter of 2010. The mandatory employee contribution rate to the defined benefit plan of 5 percent is reasonable.
Virginia Retirement System, Comprehensive Annual Financial Report for the Fiscal Year Ended June 30, 2010 http://www.varetire.org/Pdf/Publications/2010-annual-report.pdf
Ensure that the pension system is financially sustainable.
The state would be better off if its system was 95 percent funded and had an amortization period of30 years or less to allow more protection during financial downturns. However, Virginia 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. In suspending districts' mandatory payments in the fourth quarter of the fiscal year, the state eased financial pressure on the localities, but that further eroded the financial sustainability of the system. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.
The Virginia Retirement System did not respond to repeated requests to review NCTQ's analyses related to teacher pensions.