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, Washington's teacher pension system for Plans 2 and 3 is 94 percent funded. The report does not disclose the number of years remaining to amortize the system's unfunded liabilities. Washington's system is financially sustainable according to actuarial benchmarks. It should be noted, however, that Plan 1, which was closed to new members in October 1977, is only 69 percent funded. Combining all three plans, the system's funded ratio is 81.4 percent, a decline of 12.5 percentage points since NCTQ's last report, and its current pension debt exceeds $3,300 per pupil throughout the state.
Washington commits excessive resources toward its teachers' retirement system, however. The current employer contribution rate of 14.78 percent for Plan 2 and Plan 3 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 overfund its current plan and pay off unfunded liabilities of its previous plan, it does so at a high cost, precluding Washington from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rates for Plan 2 of 5.95 percent and for Plan 3 of 5 percent are reasonable.
The Washington State Department of Retirement Systems. Comprehensive Annual Financial Report: Funds of the State of Washington For the Fiscal Year Ended June 30, 2015.
Avoid committing excessive resources to the pension system.
Washington is commended for having a current system that is over 100 percent funded. Its closed system, however, is underfunded and remains a financial burden on the current employees and employers. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. The state should consider decreasing employer contributions to allow the state and local districts to spend those funds on more immediate recruitment and retention strategies.
Washington was helpful in providing information that enhanced this analysis. Washington also indicated that the employer contribution rate is 13.13%.
The FY2015 actuarial valuation indicates the employer contribution rate is 14.78%. This is the most recent report available.