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Pension Sustainability: Colorado

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: Colorado results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/CO-Pension-Sustainability-9

Analysis of Colorado's policies

As of December 31, 2010, the most recent date for which an actuarial valuation is available, Colorado's pension system for teachers is 64.8 percent funded and has a 50-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 50 years to pay off its unfunded liabilities. Colorado's amortization period significantly exceeds the regulatory requirement of a 30-year period, and its funding level is too low. The state's system is not financially sustainable according to actuarial benchmarks.

Colorado does not commit excessive resources toward its teachers' retirement system. The mandatory employee contribution rate to the defined benefit plan is 8 percent and the employer contribution rate is 14.75. Statutory requirements set the employer contribution rate at an established rate of 10.15 percent, rather than an actuarially determined amount. However, recent legislation mandated increases in the rate until a minimum funding level and a 30-year amortization period are reached; 1.5 percent of the increase came from funds that would have otherwise been available for wage increases. Even at the increased level, these rates are reasonable, considering that teachers and local districts are not also contributing to Social Security.

Citation

Recommendations for Colorado

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of 30 years or less to allow more protection during financial downturns.

State response to our analysis

The Public Employees' Retirement Association of Colorado did not respond to repeated requests to review NCTQ's analyses related to teacher pensions.

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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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