Underfunded Teacher Pensions

To all the other fiscal travails facing this country’s states and largest cities, now add their pension obligations, which are far greater than they may realize or are willing to admit. This 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.

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:
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California, the most populous state, has the largest unfunded teacher pension liability: almost $100 billion...

Illinois, which has some of the country’s largest unfunded pension liabilities, saw its Moody’s general obligation bond rating downgraded from A1 to A2 last year. Only California has a lower rating.

From the Manhattan Institute.