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Study: Teacher Pensions Underfunded by Nearly $1 Trillion
posted by: Colin | April 19, 2010, 02:08 PM   

Bad news this morning regarding teacher pensions, so I hope you've had your coffee.

A recent study by the Manhattan Institute for Policy Research states that teacher pensions nationwide are underfunded by nearly $1 trillion—three times the estimate of government officials. The difference in estimates is because teacher pensions, unlike their private counterparts, assume a much higher—if unrealistic—return on investment and enjoy more freedom than private pension funds.

Teachers in the District of Columbia, New York, Washington, North Carolina and Tennessee can breathe easy, their pensions are funded 75% or better (anything less than 80% is considered "endangered" status). Illinois' pension is funded at only 32%. West Virginia came in as the worst-funded pension, at 31%, although West Virginia's state officials are disagreeing publicly with the report. California had the largest unfunded liability, as we covered in a previous blog post.

Whether the deficit is the official estimate of $332 billion or this report's estimate of $933 billion, clearly the situation is grim. Legislation is currently in the works that would create a government agency to use taxpayer dollars to support failing union-encouraged multi-employer pensions, explains Hudson Institute's Diana Furchtgott-Roth. Only 6% of multi-employer pensions are fully funded, compared to 31% of single employer funds. Can we expect that legislation is on the horizon to bail out teacher pensions as well?

Katie Packer of the Workforce Fairness Institute predicts something could develop, noting the pro-labor position of President Obama and the dire situation union pensions are in. Citing a study by, again, Furchtgott-Roth (second time I've had to spell-check that name), Packer notes that only 59% of union pensions had 80% of the funds necessary to pay expected costs, compared to 86% of private pensions in the same position. Union officer plans likely wouldn't need a bailout, considering that, despite being more generous than union employee funds, they're often funded at rates over 100%.

Let's remember who gets hurt here: teachers and students.

If pension plans can't come up with the money they've promised, they'll either cut benefits, which hurts teachers directly, or the government will raise taxes, which will hurt teachers, students, and communities. We know they all deserve better.

What's the situation in your state?
Comment below.

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