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