Pension Sustainability: Washington
Pensions Policy
Analysis of Washington's policies
As of June 30, 2015, the most recent date for which an actuarial valuation is available, Washington's teacher pension system for Plans 2 and 3 is 94 percent funded. The report does not disclose the number of years remaining to amortize the system's unfunded liabilities. Washington's system is financially sustainable according to actuarial benchmarks. It should be noted, however, that Plan 1, which was closed to new members in October 1977, is only 69 percent funded. Combining all three plans, the system's funded ratio is 81.4 percent, a decline of 12.5 percentage points since NCTQ's last report, and its current pension debt exceeds $3,300 per pupil throughout the state.
Washington commits excessive resources toward its teachers' retirement system, however. The current employer contribution rate of 14.78 percent for Plan 2 and Plan 3 is too high, in light of the fact that local districts must also contribute 6.2 percent to Social Security. While this rate allows the state to overfund its current plan and pay off unfunded liabilities of its previous plan, it does so at a high cost, precluding Washington from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rates for Plan 2 of 5.95 percent and for Plan 3 of 5 percent are reasonable.
Recommendations for Washington
Avoid committing excessive resources to the pension system.
Washington is commended for having a current system that is over 100 percent funded. Its closed system, however, is underfunded and remains a financial burden on the current employees and employers. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. The state should consider decreasing employer contributions to allow the state and local districts to spend those funds on more immediate recruitment and retention strategies.
State response to our analysis
Washington was helpful in providing information that enhanced this analysis. Washington also indicated that the employer contribution rate is 13.13%.
Last word
The FY2015 actuarial valuation indicates the employer contribution rate is 14.78%. This is the most recent report available.
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Washington
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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
- Secondary Teacher Preparation
- Secondary Teacher Preparation in Science and Social Studies
- Special Education Teacher Preparation
- Special Education Preparation in Reading
- Assessing Professional Knowledge
- Student Teaching
- Teacher Preparation Program Accountability
Expanding the Pool of Teachers
Identifying Effective Teachers
- State Data Systems
- Evaluation of Effectiveness
- Frequency of Evaluations
- Tenure
- Licensure Advancement
- Equitable Distribution
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.