Pension Sustainability: Georgia

Retaining Effective Teachers Policy

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

Analysis of Georgia's policies

As of June 30, 2009, the most recent date for which an actuarial valuation is available, Georgia's teacher pension system is 87.2 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. Both levels are better than regulatory recommendations, and Georgia's system is financially sustainable according to actuarial benchmarks.

However, Georgia commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 10.28 percent is too high, in light of the fact that some local districts must also contribute 6.2 percent 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 Georgia from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate of 5.53 percent is reasonable. These rates are set to increase to 11.41 percent and 6 percent, respectively, for fiscal year 2012-2013.

Citation

Recommendations for Georgia

Avoid committing excessive resources to the pension system.
While the state meets actuarially benchmarks for a financially sustainable system, it does so at great cost, precluding Georgia from spending those funds on other, more immediate means to retain talented teachers.  The state should consider decreasing employer contributions to allow the state and local districts 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

Georgia provided updated information that as of June 30, 2010, the state's teacher pension system is 85.89 percent funded and has a 30-year amortization period. 

The state also contended that the recommendation is a paradox. The Georgia Teachers Retirement System cannot lower employer contributions and at the same time maintain its current funding ratio and decrease the amortization period. To reduce the amortization period and maintain the funded ratio, the system would have to increase the amount of contributions it receives.

Last word

At the time of publication, the 2010 valuation had not been published, so NCTQ has relied on publicly available information.

NCTQ realizes that pension payments place a strain on budgets and that maintaining a financially solvent system can create difficult situations. Georgia is unique in that some districts participate in Social Security and some do not. Its current contribution rate is fair for those districts that do not participate, but can be burdensome for those districts that do participate, mandating that they contribute over 16 percent (close to 18 percent in FY '12-'13) to teachers' retirement. The solution to the paradox lies in more systemic changes, such as those discussed in Goals 4-G and 4-I.

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).