Analysis: Teacher Pensions Underfunded by $900 Billion
Teachers' pension plans are underfunded to the tune of an eye-popping $933 billion, according to an analysis released this morning by the Manhattan Institute, a think tank. That's close to three times more than official state government estimates of these defined-benefit plans' liabilities, the paper states.
The authors attribute the gap to accounting rules for public pensions that permit actuaries to "discount" future obligations based on estimates of how the investments will fare over time. Unlike in private-sector plans, they aren't required to take into account how risky those investments are, and generally assume a strong stock performance. (Private pensions, the authors state, are often discounted at rates close to the yield of high-quality corporate bonds.)
If the market doesn't perform as desired, states will have to meet the gap between projections and actual benefit costs by raising taxes and, potentially, by scaling back other education services to meet the pension obligations. Think larger classes, fewer teachers, and less money for instruction.
The report adjusts the calculations of teacher-pension plans' present liabilities on
