Pension Sustainability: New York
Pensions Policy
Analysis of New York's policies
As of June 30, 2015, the most recent date for which an actuarial valuation is available, New York's teacher pension system is 94.2 percent funded. Its current pension debt is over $2,200 per pupil throughout the state. It also has a 30-year amortization period. This means that if the plan earns its assumed rate of return and makes its full actuarially determined contribution payments, it would take the state 30 years to pay off its unfunded liabilities. By its own accounting, both levels are better than regulatory recommendations, and New York's system is financially sustainable according to actuarial benchmarks. It should be noted, however, that NYSTRS uses the Aggregate Cost Method, which does not separately identify nor separately amortize the UAAL. Thus, its actuarial valuation does not report a remaining amortization period. Most other states, on the other hand, explicitly calculate the amortization components of employer contributions and disclose the number of years remaining for amortizing its pension debt. Reporting the remaining amortization period for its unfunded liabilities would improve transparency for the State's constituents.
New York, however, does commit excessive resources toward its teachers' retirement system. The current employer contribution rate of 11.72 percent (applied to 2016-17 member salaries) exceeds recommended levels, in light of the fact that local districts must also contribute 6.2 percent to Social Security. While this rate enables the state to fully fund its system, it does so at a high cost, precluding New York from spending those funds on other, more immediate means to retain talented teachers. Employee contributions depend on salary. The contribution rate is 3.0 percent if salary is less than or equal to $45,000; 3.5 percent if salary is between $45,000 and $55,000; 4.5 percent if salary is between $55,000 and $75,000; 5.75 percent if salary is between $75,000 and $100,000; and 6.0 percent if salary is greater than $100,000. These rates are reasonable.
Recommendations for New York
Avoid committing excessive resources to the pension system.
New York would be better off if its system was over 95 percent. The state, however, 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 other pension goals in this analysis provide suggestions for pension system structures that are both sustainable and fair.
State response to our analysis
New York was helpful in providing information that enhanced this analysis. The state also asserted that its contribution rates are reasonable. In addition, New York noted that "as stated in prior response letters, NYSTRS is not in agreement with several of the NCTQ goals."
Updated: December 2017
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New York
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Research rationale
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.[3] Without reform, funding is unlikely to keep up with promised benefits and these systems will become increasingly vulnerable to collapse.
Pension plans disadvantage teachers early in their careers. By overcommitting employer resources to retirement benefits, these plans often require districts to depress salaries and restrict incentives. The contribution of employers to their workers' retirement benefits is a valuable benefit, important to ensuring that individuals have sufficient retirement savings. Compensation resources, however, are not unlimited, and they must fund both current salaries and future retirement benefits. Mandated employer contributions to many states' teacher pension systems are extremely high, leaving districts with little flexibility to be more innovative with their compensation strategies.[4] Lower mandatory employer contribution rates (in states where they are too high; in some states they are shamefully low) would free up valuable compensation resources to ensure pension systems are more sustainable and equitable for all teachers. In addition, some states require high employee contributions; the impact this has on teachers' paychecks may affect retention, especially early in teachers' careers.[5]
The burden placed on districts to fund unsustainable pension systems is further exacerbated for those in states where teachers also participate in Social Security, requiring the district to pay even more toward teacher retirement. While retirement savings in addition to Social Security are necessary, states are mandating contributions to two inflexible plans rather than permitting options for teachers or their employing districts.[6]
[1] Doherty, K. M., Jacobs, S., & Lueken, M. F. (2017, February). Lifting the pension fog: What teachers and taxpayers need to know about the teacher pension crisis. Retrieved from National Council on Teacher Quality website: https://www.nctq.org/dmsView/Lifting_the_Pension_Fog
[2] For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Costrell, R. M., & Podgursky, M. (2011, February). Reforming k-12 educator pensions: A labor market perspective. New York, NY: TIAA-CREF Institute. Retrieved from https://www.tiaainstitute.org/public/institute/research/briefs/institute_pb_reforming_K-12_educator_pensions.html
[3] NCTQ's analysis of the financial sustainability of state pension systems is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office. (2007). Government Accounting Standards Board statement No. 25. Retrieved from http://www.gasb.org/st/summary/gstsm25.html
[4] Costrell, R. M., & Podgursky, M. (2011, February). Reforming k-12 educator pensions: A labor market perspective. New York, NY: TIAA-CREF Institute. Retrieved from https://www.tiaainstitute.org/public/institute/research/briefs/institute_pb_reforming_K-12_educator_pensions.html
[5] For further evidence supporting NCTQ teacher pension standards, see The Segal Group, Inc. (2010). Public employees' retirement system of the state of Nevada: Analysis and comparison of defined benefit and defined contribution retirement plans. Retrieved from https://www.nvpers.org/public/executiveOfficer/2010-DB-DC%20Study%20By%20Segal.pdf
[6] For additional information on state pension systems, see Loeb, S. & Miller, L. (2006). 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. Retrieved from http://web.stanford.edu/~sloeb/papers/Loeb_Miller.pdf; and Hansen, J. (2008, May). Teacher pensions: A background paper. Committee for Economic Development. Retrieved from http://eric.ed.gov/?id=ED502293