UNDERFUNDED TEACHER PENSION PLANS: It’s Worse Than You Think

Note: this could go in our financial blog or the education blog, but I'm claiming executive privilege 'cause you know I have a bee in my bonnet about the way our local Fayette County Commissioners put the county on the path to ruin when they switched county employees to a defined benefit retirement system. Sooner or later the taxpayers in this county are going to be reading about short-falls, the need to increase taxes and / or cut services to pay for the program the current Commissioners implemented... OK, calming down , here's the beginning of a great bit of research by the Manhattan Institute for Policy Research. Even if you don't want to wade all the way through the details, you can skim it or just read the Executive Summary.

To all the other fiscal travails facing this country’s states and largest cities, now add their pension obligations, which are far greater than they may realize or are willing to admit. This paper focuses on the crisis in funding teachers’ pensions, because education is often the largest program area in state budgets, making it an obvious target for cuts.

Although it is generally acknowledged that education is the foundation of every modern society’s future prosperity, schools unfortunately will have to compete with retirees for scarce dollars. This competition is uneven, because retirees have a legal claim on promised pension benefits that supersedes schools’ budgetary needs. Consequently, Americans can look forward to higher taxes and cuts in services, resulting in fewer teachers, bigger classes, and facilities that are allowed to deteriorate. In several states, these developments have already arrived.

The crux of the problem is the gap between assets and liabilities affecting the fifty-nine pension funds that cover most public school teachers in America. Some of these are general state-employee pension funds, while others cover only teachers. Among the findings of our study of these funds:

• All fifty-nine pension funds studied face shortfalls.
• California, the most populous state, has the largest unfunded teacher pension liability: almost $100 billion.
• The worst-funded plan in our sample is West Virginia’s, which we estimate to be only 31 percent funded.
• Five plans are 75 percent funded or better: teacher-dedicated plans in the District of Columbia, New York State and Washington State and state employee retirement systems in North Carolina and Tennessee that include teachers.

The general picture is not a good one. According to the fifty-nine funds’ own financial statements: Read the rest of the article: http://www.manhattan-institute.org/html/cr_61.htm