Free Markets, Free People
The teacher’s rotten apple
Another in a long line of reasons I don’t want government running anything that has to do with pensions, health care, railroads, post offices, etc. When it comes to running something properly and to fulfill the purpose for which it is formed, any examples which exist can most likely be counted on one hand. Public teacher’s pensions aren’t one of them:
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:
- Total unfunded liabilities to teachers—i.e., the gap between existing plan assets and the present value of benefits accrued by plan participants—are $332 billion.
According to our more conservative calculations:
* These plans’ unfunded liabilities total about $933 billion.
And for those who would like to blame this all on the beating the stock market took, huh uh:
* Only $116 billion, or less than one quarter, of this $600 billion discrepancy is attributable to the stock market drop precipitated by the 2007 financial crisis.
* The Dow Jones Industrial Average would have to nearly double overnight to make up for the present underfunding of these plans.
Instead it is another example of “what is law for me is not for me” governance:
Under current guidances, which are prepared by separate bodies, state pension funds are able to set aside fewer assets than their counterparts in private companies to cover equal liabilities. Private pension plans may invest in stocks and other higher-risk assets, but those plans may not reduce their pension funding on the basis of the superior performance expected of these types of assets. This is because those higher returns are accompanied by greater risk that returns will fall short of expectations. Yet pension funds’ obligation to retirees present and future does not diminish accordingly.
By contrast, public pension plans are permitted to base the amount of money they need today to meet their future obligations on the higher expected performance of stocks, allowing sponsors to cut their contribution rates and hope the markets perform as anticipated.
And when the markets don’t “perform as anticipated”, you, dear taxpayer, are left holding the empty bag while government, which feels bound to keep its promises, reaches for your wallet. Either that, or teachers don’t get the pensions promised.
So we have Social Security in a deep, deep hole, state pension funds in a deep hole and teacher’s pension funds right there beside them. Add to that the unfunded liabilities of Medicare and Medicaid.
Something’s got to give.