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Pension Sustainability: West Virginia

Retaining Effective Teachers Policy

Look at National Findings
Goal

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

Meets a small part of goal
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: West Virginia results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/WV-Pension-Sustainability-9

Analysis of West Virginia's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, West Virginia's defined benefit pension system for teachers is 46.5 percent funded and has a 23-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 23 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, West Virginia's funding level is extremely low. The state's system is not financially sustainable according to actuarial benchmarks.

In addition, West Virginia requires excessive resources to fund its teachers' retirement system. The current employer contribution rate of 29.2 percent is too high on its own and extremely excessive in light of the fact that districts must also contribute 6.2 percent to Social Security. While this rate allows the state to pay off liabilities relatively quickly, it does so at great cost, precluding West Virginia from spending those funds on other, more immediate means to retain talented teachers. The  mandatory employee contribution rate to the defined benefit plan of 6 percent is reasonable.  

Citation

Recommendations for West Virginia

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, West Virginia should consider ways to improve its funding level without raising the contributions of local districts 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.

State response to our analysis

West Virginia recognized the factual accuracy of this analysis.

    • Best practice
    • Meets goal
    • Nearly Meets goal
    • Meets goal in part
    • Meets a small part of goal
    • Does not meet goal

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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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