Education

Are Teachers’ Pensions in Jeopardy?

By Stephen Sawchuk — March 16, 2009 1 min read

Here’s a sobering story out of Texas with some big education implications.

According to the story, the state teacher pension system’s unfunded liabilities have tripled over the last six months, to $40.4 billion. Although the system will be able to pay out benefits for current retirees, its future looks grimmer, unless the state can figure out some way to offset the liability. Other states, notably Georgia, are in a similar situation.

Lawmakers are considering increasing the percentage that employees have to pay into the system, a move that’s sure to be unpopular with the teachers’ associations in the state.

It will be interesting to see if these kinds of issues start a conversation about ways to rework teacher-benefit systems, such as whether it’s feasible to shift from defined-benefit plans (most states have these) to defined-contribution plans. Teacher-pension issues are quite complicated so I’m oversimplifying a bit here, but in essence, under a defined-benefit plan, a state handles investments and promises teachers a guaranteed payout regardless of how the market performs. Defined-contribution plans require teachers to make investment decisions, so while they’re faced with the ups and downs of the market, the state contribution tends to be less volatile. That may seem an unfair burden on teachers, but on the other hand, there’s presumably less of a risk of an entire pension fund going bust.

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A version of this news article first appeared in the Teacher Beat blog.