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ERIC Number: ED509528
Record Type: Non-Journal
Publication Date: 2010-Apr
Pages: 28
Abstractor: ERIC
Underfunded Teacher Pension Plans: It's Worse than You Think. Civic Report No. 61
Barro, Josh; Buck, Stuart
Manhattan Institute for Policy Research
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. A complete table of shortfall amounts for each individual pension plan is appended. The purpose of this paper is not to instruct pension funds in how to invest their funds. Rather, it is to recommend that they account for their liabilities in the manner of private pension plans, which must estimate the present cost of future liabilities on the basis of the lower returns that high-quality corporate bonds pay. They do so because the likelihood that these instruments will fail to make payments to their owners, the pension funds, is about as great as the risk that retirees will not receive their promised payments in the promised amounts. Using these accounting rules, public plans (like private ones) would be denied the opportunity to short-change their pension plans by assuming strong asset performance. An appendix is included. (Contains 3 charts and 15 endnotes.)
Manhattan Institute for Policy Research. 52 Vanderbilt Avenue, New York, NY 10017. Tel: 212-599-7000; Fax: 212-599-3494; Web site:
Publication Type: Reports - Descriptive
Education Level: Elementary Secondary Education
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: Manhattan Institute for Policy Research; Foundation for Educational Choice