Teachers’ pension plans are underfunded by $933 billion, according to an analysis released by the Manhattan Institute and the Foundation for Educational Choice.
According to the paper, that’s close to three times more than official state government estimates of these defined-benefit plans’ liabilities.
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 private-sector plans, public-pension plans aren’t required to take into account how risky those investments are and generally assume strong stock performance.
If the market doesn’t perform as desired, states will have to meet the gap between projections and actual benefit costs by raising taxes or scaling back other education services to meet pension obligations.
The report adjusts the calculations of teacher-pension plans present liabilities by using private-sector discount rates. It also adjusts them based on the market value of current investments to reflect the last few years of economic downturn.
A version of this article appeared in the April 21, 2010 edition of Education Week as Teacher Pensions