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, Vermont's defined benefit pension system for teachers is 58.6 percent funded, a decrease of 1.9 percentage points since NCTQ's last report. Its current pension debt exceeds $13,200 per pupil throughout the state. It also has a 24-year amortization period. This means that if the plan earns its assumed rate of return of 7.95 percent and makes its full actuarially determined contribution payments, it would take the state 24 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, Vermont's funding level is too low. The state's system is not financially sustainable according to actuarial benchmarks.
Vermont commits excessive resources toward its teachers' retirement system. The mandatory employee contribution rate to the defined benefit plan of 5 percent is reasonable. The current employer contribution rate of 13.63 percent, which is paid by the state, is excessive in light of the fact that districts and teachers must also contribute 6.2 percent to Social Security. While this rate allows the state to pay off liabilities, they do so at a high cost, precluding Vermont from spending those funds on other, more immediate means to retain talented teachers.
Actuarial Valuation Report of the State Teachers’ Retirement System of Vermont, Prepared as of June 30, 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. Vermont, however, should consider ways to improve its funding level without raising the contributions of the state 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.
Vermont did not respond to repeated requests to review this analysis.