Teaching Profession

Retiree Plans Hurt By Market Decline As Anxieties Rise

By Dakarai I. Aarons — November 04, 2008 6 min read

Plunges in the stock market have taken a toll on the fortunes of the nation’s pension funds for retired teachers and other public employees, with retirement systems nationwide reporting losses in the billions of dollars in recent weeks.

The losses have worsened already-high unfunded obligations for plans that have promised more than $2 trillion in retirement benefits to public employees at a time of ballooning state and local government deficits.

Experts stress that public employee pension plans are structured to be safe, long-term investments.

“I think [teachers and others] should feel confident they should have what they have been promised,” said Ronald K. Snell, the director of the state-services division at the Denver-based National Conference of State Legislatures.

But the unsettled economy has many teachers on edge—a point illustrated by fierce opposition to a plan by Georgia Gov. Sonny Perdue that teachers warn could threaten future cost-of-living adjustments, or COLAs.

Under the Republican’s proposal, the board of the Teachers Retirement System of Georgia could decide how much of an adjustment—if any—its 75,000 retirees get each year. That would end a rule put in place in 1969 giving an automatic 1.5 percent increase twice a year.

The Georgia fund’s value decreased by $8.7 billion from June to September to $41.6 billion. But Bert Brantley, a spokesman for Gov. Perdue, said the proposed change is not directly related to the current financial crisis. Rather, he said, it is intended to give the pension managers greater control over the fund. The other pension boards in the state already approve cost-of-living benefits each year.

“At the end of the day, it really is about the board’s ability to manage. They have a fiduciary responsibility to manage their assets,” he said. “There’s [currently] no discretion. Our hope is our COLAs are approved each year with the same frequency and at the same rate as the last several years. If that happens, it means the fund is stable and healthy. This is not an effort to reduce them. This is an effort to maintain longer sustaining ability of the fund.”

Georgia educators, however, are highly suspicious of the governor’s motives, noting several attempts in the Republican-controlled legislature in recent years to move some pension dollars into riskier financial ventures, such as investing in junk bonds.

Tim Callahan, a spokesman for the 75,000-member Professional Association of Georgia Educators, an organization independent of the national teacher unions, said tens of thousands of Georgia teachers have sent state officials letters and e-mails to protest.

Plunging Value

While Georgia teachers fume, other educators have reacted with alarm to recent news about sharp drops in the value of public pension funds.

Specialist Dilip Patel, left, works at his post at the New York Stock Exchange on Oct. 29. Pension plans have been stung by falling stock values.

The 795,000-member California State Teachers’ Retirement System, the nation’s second-largest public pension fund, had $162.2 billion in assets as of June 30. But by Sept. 30, that amount had shrunk to $147 billion, a decrease of 9.4 percent.

The day before, Wall Street investors lost $1.2 trillion when the Dow Jones Industrial Average dropped a record 778 points.

Others have been hit harder. The nation’s largest pension system, the 1.6 million-member California Public Employees’ Retirement System, lost 23 percent of its value in that same period, decreasing to $185 billion from $239 billion, it announced last week. The larger plan includes some retired teachers.

New York’s teacher-retirement fund, which covers most educators outside of New York City, dropped $7 billion in value from July to September, sitting at $88 billion as of Sept. 30. The larger statewide employee pension plan shrank by $20 billion between April and Sept. 30, state Comptroller Thomas P. DiNapoli announced last week.

And the New York City Pension Funds, which include two that cover school employees, dropped to $95.9 billion in the quarter ending Sept. 30 from $104.7 billion, a decline of 8.5 percent. Compounding that problem, Gov. David A. Paterson said last week, is a statewide budget deficit expected to hit $7 billion over the next 3½ years.

According to a 2007 Pew Center on the States report, states had $361 billion in unfunded liabilities in public pension plans, based on 2006 data. But that was before a slowing economy early in 2008 and before the global economic crisis this fall sharply decreased plan values.

“We can expect to see pretty much every state substantially increase in unfunded liabilities,” said the ncsl’s Mr. Snell. “On average, the funds are 60 percent invested in equities, where the big hits have come.”

Digging Out

States likely will tackle dwindling pension values in 2010, after a full accounting of those values is done at the close of the 2009 fiscal year. Changes most likely will come in the form of raising contributions made by states, local governments, and school districts to the plans.

Policy decisions on pensions and cost-of-living adjustments vary from state to state. While the Georgia plan’s adjustments are controlled by an administrative rule of a pension board, ad hoc legislative committees make the decisions in Texas, Oklahoma, and North Dakota.

It is unlikely, because of political considerations, that many states would look at a proposal like that in Georgia or actively seek to raise the contribution rate of future retirees, Mr. Snell said.

But there’s another option: holding off on dealing with the funding gap while states deal with other budget issues.

“Traditionally, legislatures hard-pressed otherwise will postpone pension contributions with expectations that improved market conditions will let them catch up in the future,” Mr. Snell said.

Meanwhile, states are seeking to ensure retirees that pension funds remain sound, with agencies in many states, such as Indiana and South Carolina, posting notices on their Web sites telling retirees there’s no need to panic.

The National Association of State Retirement Administrators and the National Council on Teacher Retirement issued a statement on Sept. 25 noting that pension funds have survived other market plunges, such as in 1987 and after the Sept. 11, 2001, terrorist attacks.

“History shows that because of the structure of the plans and their ability to be long-term, patient investors, they are able over time to come through these periods and not to have to make draconian changes in contributions from employers or employees,” said Leigh Snell, the federal government-affairs representative for the teacher-retirement council.

The Georgia teacher-pension plan ranks as one of the nation’s most actuarially sound and well-financed, boasting 94 cents for every dollar it is expected to pay. But the plan’s health hasn’t doused opposition to Gov. Perdue’s proposal on cost-of-living adjustments.

Educators also argue that they have paid 5 percent annually into the plan since 1995, and for most of its life, participants paid 6 percent—in both cases, more than what other state employees pay into their retirement plans.

“We’ve paid for our COLAs. So we don’t think it is fair to cut back on us when we’ve already paid for them. We are getting back the money we put in for, in my case, those 37 and a half years,” said William G. Sloan, the executive director of the 18,000-member Georgia Retired Educators Association.

“I was willing to put it in because I was under the impression I would be getting it back when I wasn’t working,” he said.

‘Hot Button’ Issue

One of the angry teachers is Michael C. Witt, who teaches 3rd grade in Alpharetta, in suburban Atlanta, part of the 88,000-student Fulton County school system. He said the proposed pension changes have become a “hot button” issue among educators.

“Our fund is managed by state employees, and they have done an amazing job. This thing ain’t broke. Don’t fix it,” he said.

But Mr. Brantley, the governor’s spokesman, said the state needs the flexibility. The retirement system’s “only option right now is to increase the amount teachers pay in and employers pay in. They are doing that next year.” The employees’ contribution will increase to 5.25 percent annually.

He added: “I’m disappointed people would take this as an affront to teachers. This is really about managing the state’s fiscal affairs in a way that will make them sustainable over the long term.”

Related Tags:

A version of this article appeared in the November 05, 2008 edition of Education Week as Retiree Plans Hurt By Market Decline As Anxieties Rise

Events

This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Recruitment & Retention Webinar
Recruiting and Retaining a More Diverse Teaching Workforce
We discuss the importance of workforce diversity and learn strategies to recruit and retain teachers from diverse backgrounds.
Content provided by EdWeek Top School Jobs
Student Well-Being Webinar Boosting Teacher and Student Motivation During the Pandemic: What It Takes
Join Alyson Klein and her expert guests for practical tips and discussion on how to keep students and teachers motivated as the pandemic drags on.
This content is provided by our sponsor. It is not written by and does not necessarily reflect the views of Education Week's editorial staff.
Sponsor
Student Well-Being Webinar
A Holistic Approach to Social-Emotional Learning
Register to learn about the components and benefits of holistically implemented SEL.
Content provided by Committee for Children

EdWeek Top School Jobs

Principal
Meredith, New Hampshire
Inter-Lakes School District
Elementary Principal
Washington State
Wenatchee School District
Principal
Meredith, New Hampshire
Inter-Lakes School District
Elementary Principal
Washington State
Wenatchee School District

Read Next

Teaching Profession Teachers Are Stressed Out, and It's Causing Some to Quit
Stress, more so than low pay, is the main reason public school teachers quit. And COVID-19 has increased the pressure.
7 min read
Image of exit doors.
pavel_balanenko/iStock/Getty
Teaching Profession Opinion Should Teachers Be Prioritized for the COVID-19 Vaccine?
Not all states are moving teachers to the front of the vaccination line. Researchers discuss the implications for in-person learning.
6 min read
Teacher Lizbeth Osuna from Cooper Elementary receives the Moderna vaccine at a CPS vaccination site at Roberto Clemente High School in Chicago, Ill., Thursday, Feb. 11, 2021.
Chicago public school teacher Lizbeth Osuna receives the COVID-19 vaccine at a school vaccination site last week.
Anthony Vazquez/Chicago Sun-Times via AP
Teaching Profession Chicago Teachers Approve School Reopening Plan: ‘We Got What We Were Able to Take’
Chicago Teachers Union members have voted in favor of a reopening deal, signaling that in-person classes can resume Thursday as planned.
Hannah Leone & Katherine Rosenberg-Douglas
4 min read
Chicago Public Schools CEO Janice Jackson speaks during a news conference at City Hall in Chicago on Feb. 7, 2021. The Chicago Teachers Union has approved a deal with the nation’s third-largest school district to get students back to class during the coronavirus pandemic, union officials announced early Wednesday, Feb. 10, 2021.
Chicago Public Schools CEO Janice Jackson speaks during a news conference at City Hall in Chicago on Feb. 7. The Chicago Teachers Union has approved a deal with the nation’s third-largest school district to get students back to class during the coronavirus pandemic.
Brian Cassella/Chicago Tribune via AP
Teaching Profession 1 in 5 Educators Have Been Vaccinated, NEA Survey Finds
About one-fifth of teachers in the nation's largest teachers' union have had a COVID-19 vaccine; another 18 percent have scheduled a shot.
3 min read
Penny Cracas, right, with the Chester County, Pa., Health Department, administers the Moderna COVID-19 vaccine to Robert Dando, a school nurse, late last year in  West Chester, Pa.
Penny Cracas, right, with the Chester County, Pa., Health Department, administers the Moderna COVID-19 vaccine to Robert Dando, a school nurse, late last year in West Chester, Pa.
Matt Slocum/AP