Underfunded Teacher Pension Plans: It’s Worse Than You Think is the cheery title of a new report by Josh Barro, Manhattan Institute fellow, and Stuart Buck, University of Arkansas doctoral fellow.
If public employee pension funds used the same assumptions as private sector plans, the aggregate estimates of unfunded liabilities would more than double, from approximately $332 billion to $933 billion. Unless it is addressed, this gap between pensions’ payment obligations and their investment assets will result in tax increases and cuts in services—a phenomenon already happening in some states.
All the pension funds that cover teachers face shortfalls: Unfunded liabilities to teachers total $332 billion, Barro and Buck estimate. Only five plans — in D.C., New York, Washington, North Carolina and Tennessee — are 75 percent funded or better. West Virginia’s plan is only 31 percent funded.
The stock market drop accounts for less than one quarter of the problem, the authors write: “The Dow Jones Industrial Average would have to nearly double overnight to make up for the present underfunding of these plans.” Fund managers have assumed that stocks will go way up to cover promised benefits. That allows public officials to commit fewer dollars now, pushing the problem off for a few years.
California’s public-employee pensions, including the Teacher Retirement System, are underfunded by $200 billion to $350 billion, concludes a new study by Stanford public policy students. They suggest “reducing pension benefits or moving to a hybrid system in which retirees receive a smaller fixed pension combined with a 401(k)-style plan.”
Connecticut is in big trouble too, says the Yankee Institute for Public Policy.