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Teacher Pensions Are Sinking Faster Than The Titanic

Teacher pensions are a huge and growing crisis waiting to explode without major reforms, warns a new report released Tuesday by an educational think tank.

“Do the math on teacher pensions and it just doesn’t add up,” argues the National Council on Teacher Quality in its report, Doing the Math on Teacher Pensions. Total unfunded teacher pension liabilities in 2014 were a whopping $499 billion dollars, the group found. That amount is surging rapidly; in 2012, the total was just $394 billion, meaning that pension debt is growing by over $50 billion a year.

Some states are in a particularly huge hole. Illinois, for instance, has unfunded liabilities of $55 billion — a debt of over $27,000 for every student currently in its school system. In Alaska, per-student debt is over $25,000. Nationwide, the average burden is about $10,400 per student, and only one state, South Dakota, has a perfectly funded pension system with zero unfunded liabilities. Since 2008, the number of states with well-funded pension systems (over 90 percent of obligations met) has dropped from 14 to only nine.

Without reform, state governments are sinking towards an abyss. Out of every dollar spent on pensions, 70 cents are paying off pension debt for current retirees rather than preparing for the retirement of current teachers. Eventually, either pension plans are going to go broke or the states themselves will.

While that’s awful for taxpayers, NCTQ makes the case that it’s bad for teachers as well, because the unsustainability of their promised pension plans denies new teachers the security a pension is supposed to provide. That loss of security, they argue, drives top talent away from teaching and will lead to lower-quality teachers, and by extension, lower-quality schools.

According to NCTQ, the biggest culprit for the rising crisis is states’ reliance on defined benefit pension plans, which stipulate exactly how much teachers will receive upon retirement, rather than defined contribution plans, which requires that a certain amount of money be put into the pension fund every single year.

The group argues that DB plans encourage states to put off paying for the retirement of current teachers, pushing expenses into the future for later governments to deal with. While DC plans don’t explicitly guarantee certain benefits, their required annual contributions towards employee’s retirements make them substantially more sustainable, and less likely to grow into bloated monsters of unfunded liabilities that put governments on the brink of bankruptcy.

In addition to sounding the alarm, NCTQ also graded states based on how well they are reforming to meet the coming pension maelstrom. A handful were graded well, especially Alaska, which earned an A grade for tossing out its entire pension system and rebooting it as a DC plan that can be properly funded year to year. Most, however, were faulted for relying on Band-Aids rather than the big fixes that are needed. Over 20 states received D grades, however, and one, Mississippi, earned an F.

“For the most part, policy changes have focused on achieving cost savings, often amounting to relatively minor savings to the system at great expense to teachers.”

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