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Pension Sustainability: Vermont

Retaining Effective Teachers Policy

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Goal

The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Meets a small part of goal
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Vermont results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/VT-Pension-Sustainability-9

Analysis of Vermont's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Vermont's defined benefit pension system for teachers is 66.5 percent funded and has a 30-year amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 30 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 does not commit 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, which is paid by the state, of 7.4 percent is not unreasonable. However, districts and teachers must also contribute 6.2 percent to Social Security. This puts the total employer contribution rate very close to an excessive contribution requirement. The employer rate is recommended to increase to 8.68 percent and 8.72 percent for the next fiscal years. While these rates allow the state to pay off liabilities, they do so at great cost, precluding Vermont from spending those funds on other, more immediate means to retain talented teachers.

Citation

Recommendations for Vermont

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. However, Vermont 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. 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.

State response to our analysis

The State Teachers' Retirement System of Vermont did not respond to repeated requests to review NCTQ's analyses related to teacher pensions.

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  • Vermont

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Delivering Well Prepared Teachers
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Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).

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