Thursday, December 13, 2012

It's a National Disgrace, Led by Illinois ... States Promise and Fail to Fund Teachers' Pension Plans Properly

A new report deals with the states' underfunding of pension benefits promised to teachers. It's a sobering story and however it's resolved, our nation's economy will be negatively impacted for years to come as either catch-up funding is made or benefits are reduced for future retirees.

States Faulted Over Teacher Pension Shortfall has the breakdown:

"U.S. states carry a total of about $325 billion in unfunded teacher pension liabilities, according to a report that says efforts by lawmakers to tinker with vesting periods or shave benefits are falling far short of the overhaul that is needed.


The report, issued Thursday, gives a comprehensive state-by-state accounting of the problems facing teacher pensions. It concludes that recent pension changes—made by at least 22 states this year—haven't helped much and, in some cases, have harmed teachers or taxpayers. The report is from the National Council on Teacher Quality, which advocates stronger teacher-evaluation tools and has sometimes been at odds with teachers unions.

Sandi Jacobs, a vice president for the council, said pension systems are outdated and could make it difficult to attract the best teachers. "We have to take a look and figure out what is good for teachers and taxpayers and, ultimately, that will be good for students as well," she said.

The report comes as most states face crushing public-employee pension debt. It is estimated there is a nearly $1 trillion gap between what states and workers have put into the systems and what the states owe in retirement benefits, though some pension experts say the shortfall could be even larger.

The report argues the crisis was created by bad policies and by lawmakers' failure to fully fund promises to teachers. It recommends fixes including increasing the age at which teachers can begin to collect full benefits, and moving more teachers to 401(k)-style retirement accounts. Teachers in most states now have plans that guarantee a specific income after retirement.

Dennis Van Roekel, president of the National Education Association, the nation's largest teachers union, said that while there could be fixes to the systems, the focus should be on fully funding them. "Every single year the employees held up their end of the bargain and I just don't think we can reward employers who abuse their responsibility," he said.

How State Teacher Pension Funds Are Holding Up

The report, based on state data, calculates that teacher pension systems on average are funded at about 73% this year, compared with 82% in 2009. Shortfalls have grown in all but seven states during that time. Illinois tops the list with unfunded pensions of $43.5 billion. The report doesn't include liabilities of individual school districts that fund their own pensions, such as Chicago, which has a $6.8 billion shortfall in its pension system.

The report also notes that the size of the liability is likely much larger, because the state data don't account for what are widely believed to be unrealistic projections about future investment returns on pension assets. A 2010 report by the Manhattan Institute for Policy Research, a right-leaning think tank, estimated that teacher pension shortfalls could total $933 billion when more realistic investment-return projections are taken into account.

School districts are feeling the burden. Since 2008, 40 states have raised employer contributions, generally paid by school districts, at an average cost of about $1,200 more per teacher each year.

The report also notes teachers haven't come away unscathed. More states now make teachers work longer to fully vest in pension plans, while 27 states have increased the amount teachers must contribute to the plans. . . .

In 38 states, retirement eligibility is based on years of service, rather than age which allow teachers to retire and collect full benefits as early as 47 years old. The report says the 10 states that no longer allow teachers to collect the defined benefit before age 65 save an average of about $450,000 per teacher."

Summing Up

When the acknowledged underfunding and the unrealistic rate of return assumptions on invested funds are taken into account, it looks like we have as much as another $1 trillion "debt" on our hands as a nation for teachers' pensions alone, albeit spread unequally among the 50 individual states.

Taxpayers haven't paid the money into the state pension funds to enable teachers to retire as early as age 47 with a guaranteed pension benefit for life.

Nor have taxpayers made sufficient pension fund payments to enable retired teachers to receive automatic cost of living increases of as much as 3% annually regardless of what happens to the economy or the rate of inflation.

Government officials have done an incompetent and perfectly horrible job of making promises to teachers and then not confronting taxpayers with the financial impact of those promises.

Teachers' unions have worked long and hard to fleece the taxpayers as well.

Now the bills are coming due and the money isn't there. Not even close.

So why don't the taxpayers just pay up?

Well, maybe because private sector taxpayers can't retire at age 47 with guaranteed pensions and automatic annual cost of living increases to their pensions. It's now very much a 401(k) world in the private sector.

And maybe the taxpayers are reluctant to pay because the bulk of them think they've been had by their government representatives and the teachers' union leadership. And if they do think they've been had, well, they're right about that.

In my view, the blame lies squarely at the feet of the government knows best gang negotiators and their co-conspirator union negotiating allies. It was a nice cozy game of take care of the teachers but don't tell the taxpayers. OPM versus MOM. As simple as that.

And so who are the real victims? The taxpayers, of course, and sooner or later the teachers who won't receive what they've been promised.

And our future economic growth will be negatively affected as well.

This teachers pension underfunding fiasco is a national disgrace.

The government OPM mentality and the teachers' union leadership's OPM mentality have combined to create an untenable and unaffordable situation for teachers and taxpayers alike.

But the parasitic gang of government and union officials won't be worrying about their own pensions. For them it's just OPM.

To the teachers and taxpayers, however, it's MOM.

What a difference!

Thanks. Bob.

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