Lawmakers briefed on how teacher workforce shifts could affect Vermont pension and retiree-health costs

Chris Root of the Joint Fiscal Office briefed the legislative Ways & Means committee on how changes in the size and retirement behavior of Vermont’s teacher and school workforces could affect state pension and retiree‑health liabilities.

Root said the state teachers retirement system (VSTRS) provides a defined‑benefit pension calculated using years of service, average final compensation (the three highest consecutive years), and a benefit multiplier (1.67% for the first 20 years, higher thereafter), with a maximum benefit of 60% of AFC. He noted the system’s automatic cost‑of‑living adjustment is set at 50% of the year‑over‑year change in the Consumer Price Index, with a statutory floor of 0% and a ceiling of 4%.

"We're now cashflow positive," Root said, explaining that contributions now exceed benefit payouts from all sources, which reduces pressure to sell assets at disadvantageous times. He added that the teacher system is nevertheless mature, not fully funded and remains sensitive to demographic and actuarial changes.

Why this matters: the size and composition of the active workforce drive the annual "normal cost" of benefits and influence the state employer contribution known as the Actuarially Determined Employer Contribution (ADAC). Root said the current normal cost (including administrative costs) is about 11.7% of projected active payroll; teachers contribute roughly 6.75% on average and the state funds the remainder (just under 5% of payroll) plus amortization payments on the unfunded liability.

Root reviewed recent funding history and policy: Vermont is in a 30‑year amortization period that began at the end of fiscal 2008 and is scheduled to retire the current unfunded liability by FY2038. The unfunded liability grew from under $380 million at the start of that period to about $1.7 billion in the most recent valuations, and the actuarial funded ratio has recovered to roughly 61.2% on an actuarial basis. As part of prior legislation (Act 114), the state included plus payments from the general fund that began at $9 million in FY2024 and rise to $15 million in FY2026; Root said those plus payments continue until the system reaches 90% funding, currently projected in FY2035. The state also made a one‑time $125 million payment to the teacher system under the same reform package.

Root cautioned that actuarial assumptions and experience both matter. The assumed long‑term payroll growth used in the amortization policy is 3% and the long‑term investment return assumption is 7%. The Joint Fiscal Office and system actuaries conduct annual actuarial valuations and a fuller experience study every three years; the most recent experience study was in 2023. Root noted prior assumption changes — for example, the 2019 recommendation that lowered the assumed return from 7.5% to 7% — materially affected employer costs and prompted legislative reform.

Non‑teacher school staff typically participate in VMERS (the municipal retirement system). Root said VMERS is smaller, less mature in some respects and has a higher funded ratio than VSTRS but that its ADAC has not been fully funded in recent years. To address funding pressures, recent budgets set scheduled contribution increases of 25 basis points per year for employees and employers through FY2030.

On retiree health (OPEB), Root said Vermont began systematic prefunding for teacher OPEB in 2023 on an amortization schedule that ends in FY2048; current prefunding is low (about 11.6% funded on the initial prefunding schedule) and the state continues to carry significant long‑term OPEB exposure. Root explained that OPEB cost drivers differ from pensions — health‑cost trend assumptions, years of service (which affect subsidy generosity), spousal coverage and Medicare eligibility timing all matter — and that a wave of early retirements can increase near‑term OPEB enrollment and costs.

On the effect of workforce changes, Root said fewer active members would, over the long term, reduce future normal cost accruals, but the near‑term fiscal impact depends on how reductions occur. If reductions induce higher rates of early retirement or target specific subsets of higher‑paid, longer‑service workers, the result can be increased short‑term liability and actuarial losses. He cited prior early‑retirement incentives as an example of how targeted actions can change retirement behavior and increase costs.

Committee members and other panelists asked how pension costs interact with local school budgets, federal funding and buyout arrangements; Root and representatives of the treasurer’s office said local decisions and federally funded positions can alter which budgets bear portions of the cost. The Joint Fiscal Office plans further modeling with actuaries on scenarios that could materially stress the systems and will present those findings in coming months. The Agency of Education and the treasurer’s office were flagged as upcoming sources of additional testimony.

The briefing did not include any formal committee votes or policy decisions; it was presented as information for lawmakers as they consider education‑funding and workforce questions.

Ending: Committee members asked staff to follow up with additional modeling and with the Agency of Education and treasurer’s office at future hearings; the committee paused for a break at the conclusion of the session.