NCTQ: Pension Plans Rife With Unfunded Liabilities


A new report from the National Council on Teacher Quality has detailed the cost-effectiveness, fairness and flexibility of pension plans currently available to teachers in 38 states across the country and offered a report card on teacher pension policies in place in all 50 states and the District of Columbia.

The report, Doing the Math on Teacher Pensions: How to Protect Teachers and Taxpayers, discovered half a trillion dollars in unfunded liabilities in teacher pension systems in 2014. That debt load had risen over $100 billion in only two years. On average, around 70 cents for every dollar is contributed to teacher pension systems in order to pay off the debt rather than going to future teacher benefits.

The report maintains that lawmakers and pension boards continue to deny that such a problem with the system exists.

The National Council on Teacher Quality (NCTQ) has analyzed the pension systems in all 50 states as well as the District of Columbia since 2008. Report cards are issued for each state offering a comprehensive look at state data for the pension system and pension system rules. Each state is given a letter grade based on how well they do in five areas.

NCTQ looks into the extent to which each state offers teachers the option of a flexible and portable plan. For example, the defined contribution (DC) plan offers users a portable retirement plan that is similar to a 401(k) in that there is a fixed level of contributions for both teachers and employers, but not a guaranteed set level of benefits. Alaska, earning an A in this area, is the only state to adopt a mandatory DC pension plan for its teachers, although Florida, Michigan, Ohio, South Carolina and Utah do offer DC plans as a choice for teachers in those states.

In addition, the council looks to ensure that traditional defined benefit (DB) plans are portable, flexible and fair for all teachers in each state. South Dakota, earning a B+ in this area, has showed that this is possible to accomplish.

Each state must make sure that basic principles of fairness are maintained throughout traditional systems, which allow teachers to vest no later than their third year on the job, that have withdrawal options that include the funds contributed by their employer, and that purchase service time for previous teaching experience in addition to all official leaves of absence.

Pension funding must be shored up for existing commitments, and each state must be sure their pension plan accrues pension wealth for each year worked.

For 2014, the average state teacher pension policy grade was a C-.

Tennessee received an overall grade of B- due to the system's sustainability. While the system does meet 90% of the funding goal, the state does have a longer vesting time that does not offer much flexibility for teachers who leave the system.

Rhode Island also earned a B- due to retirement eligibility being based on age alone and that pension benefits increase treating each year of work the same way. However, the study found contribution rates to not be reasonable, the vesting period to be too long, the plan is not fully portable, and the system is not funded more than 90%.

Mississippi received the lowest grade of all 50 states — an F.

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