Underfunded Teacher Pension Plans: It’s Worse Than You Think

 

A new report by the Manhattan Institute reveals that teacher pension funding gaps are three times greater than what states report, states a new Manhattan Institute/Foundation for Educational Choice study. Authors Josh Barro and Stuart Buck reveal the major disparity between what states report and the true value of unfunded liabilities for teacher pensions. Their 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,” write the authors in their Executive Summary.

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.

These liabilities for all 50 states now total almost $1 trillion—an unfunded burden that states must pay over time at taxpayer expense.

Read the report…