Teachers * Pensions * Unions * Government

States Faulted Over Teacher Pension Shortfall

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By STEPHANIE BANCHERO, WSJ, December 13, 2012

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Sandi Jacobs, a vice president for the council, said pension systems are outdated and could make it difficult to attract the best teachers.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

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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.

Tracy Radich, a 41-year-old teacher at Joseph M. Gallagher Elementary School in Cleveland, said changes in Ohio mean she will have to work an extra eight years to earn full retirement benefits. "I worry I will get worn down and not have the energies that I have now to do all I need to do for my students," she said.

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.

A version of this article appeared December 13, 2012, on page A6 in the U.S. edition of The Wall Street Journal, with the headline: States Faulted Over Teacher Pension Shortfall.