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Pension Sustainability: Delaware

Retaining Effective Teachers Policy

Look at National Findings
Goal

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

Nearly meets goal
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Delaware results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/DE-Pension-Sustainability-9

Analysis of Delaware's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Delaware's teacher pension system is 96 percent funded and has a 20-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 20 years to pay off its unfunded liabilities. Both levels are better than regulatory recommendations, and Delaware's system is financially sustainable according to actuarial benchmarks.

However, Delaware commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 9.27 percent is excessive, in light of the fact that the state must also contribute to Social Security. While this rate allows the state to keep its system well funded and pay off liabilities, it does so at great cost, precluding Delaware from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate to the defined benefit plan of 3 percent of income greater than $6,000 is reasonable. The rate will increase to 5 percent for those hired on or after January 1, 2012. This rate is also reasonable.

Citation

Recommendations for Delaware

Avoid committing excessive resources to the pension system.
While the state meets actuarial benchmarks for a financially sustainable system, it does so at great cost, precluding Delaware from spending those funds on other, more immediate means to retain talented teachers.  The state should consider decreasing employer contributions to allow the state to spend those funds on other recruitment and retention strategies. However, it must be careful to maintain its funding level to allow for protection during financial downturns.

State response to our analysis

Delaware was helpful in providing NCTQ with facts that enhanced this analysis.

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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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