Pension Sustainability: Ohio
Pensions Policy
Analysis of Ohio's policies
As of June 30, 2015, the most recent date for which an actuarial valuation is available, Ohio's pension system for teachers is 69.3 percent funded, an increase of 3.0 percentage points since NCTQ's last report. Its current pension debt exceeds $17,600 per pupil throughout the state. It also has a 28.4-year amortization period, meaning that if the plan earns its assumed rate of return of 7.75 percent and makes its full actuarially determined contribution payments, it would take the state 28.4 years to pay off its unfunded liabilities. The state's funding ratio does not meet conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
The mandatory employer contribution rate of 14 percent is slightly high. This rate is set by the State Teachers' Retirement Board. While this rate is sufficient to cover what is needed to adequately amortize unfunded pension liabilities, it does so at a high cost, precluding Ohio from spending those funds on other, more immediate means to retain talented teachers. Given that employers and employees do not contribute to Social Security, the mandatory employee contribution rates of 13 percent for the defined benefit plan and 1.5 percent to the combined plan are reasonable.
Recommendations for Ohio
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. Ohio, however, should consider ways to improve its funding level without raising the contributions of school districts and teachers. This will be difficult, though, as the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. Improving funding levels necessitates, in part, systemic changes in the state's pension system. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
State response to our analysis
Ohio was helpful in providing information that enhanced this analysis.
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Ohio
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Delivering Well Prepared Teachers
- Admission into Teacher Preparation
- Elementary Teacher Preparation
- Elementary Teacher Preparation in Reading Instruction
- Elementary Teacher Preparation in Mathematics
- Early Childhood
- Middle School Teacher Preparation
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- Secondary Teacher Preparation in Science and Social Studies
- Special Education Teacher Preparation
- Special Education Preparation in Reading
- Assessing Professional Knowledge
- Student Teaching
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Identifying Effective Teachers
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- Evaluation of Effectiveness
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- Tenure
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Retaining Effective Teachers
Exiting Ineffective Teachers
Pensions
Research rationale
Teacher salaries are just one part of the compensation package that teachers receive. Virtually all teachers are also entitled to a pension, which, upon vesting, provides compensation for the rest of their lives after retirement. In an era when retirement benefits have been shrinking across industries and professions, teachers' generous pensions remain fixed. In fact, nearly all states continue to provide teachers with a defined-benefit pension system, an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers.
Under defined benefit systems, states have made an obligation to fund fixed benefits for teachers at retirement. However, the financial health and sustainability of many states' systems are questionable at best. Some systems carry high levels of unfunded liabilities, with no strategy to pay these liabilities down in a reasonable period, as defined by standard accounting practices. Without reform, these systems are a house of cards, vulnerable to collapse as funding cannot keep up with promised benefits. And it is taxpayers who will have to pay if it all tumbles down.
Pension plans disadvantage teachers early in their careers by overcommitting employer resources to retirement benefits.
Pension Sustainability: Supporting Research
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.