Thursday, April 15, 2010
Laura Brown
Hawaii Reporter
Teachers often concede to union contracts that trade increased wages for increased secure retirement benefits. They count on the day they can retire without out worry. That's what California teachers believed until they were issued "IOU's" from the state.
Some teachers in Alabama haven't received pension payouts for 6 months.
A new joint study released by the Foundation for Educational Choice and the Manhattan Institute for Policy Research, "Underfunded Teacher Pension Plans: It's Worse Than You Think," by Josh Barro and Stuart Buck, reveals nearly $1 trillion in unfunded teacher pension liabilities in 59 funds nationally.
"It's time for governors and legislatures to have a grown up conversation about this 'mountain of debt' facing their state budgets, not a time for ideology," says Robert Enlow, president and CEO of the Foundation for Educational Choice. "Every dollar in the red ink column for pensions is one less dollar that is used to educate children," he says.
The study finds that the stock market drop that began in 2007 accounts for only one-fourth of unfunded liabilities in pension plans nationally. "Public pensions are permitted to base the amount of money that they need today to meet their future obligations on a higher performance of stock," says Barro.
This is true in Hawaii where current law requires the Employee Retirement System to estimate an 8 percent return on investment. The high-rate of return estimates effectively lower state contributions to the fund.
Enlow says that a legislative mandate to estimate returns at 8 percent "handcuffs" taxpayers.
This overestimation allows public pension funds to set aside less money to cover pension payouts.
The study says that private pension funds use a 6 percent return on investment, but do not reduce payments when returns are higher.
In 2008, Hawaii's public employee pension fund lost $461 million or 3.5 percent on investments according to methodologies generally accepted by the Global Investment Performances Standards (GIPS) following double-digit returns from 2005 to 2007.
The ERS unfunded liability stood at over $5.1 billion in June 2008. Funding estimates of 68.8 percent do not include $524 million in deferred investment losses, according to the 2008 Comprehensive Annual Financial Report.
The study shows Hawaii at 67 percent funded, but after adjusting for the discount rate and figuring market value the fund is only 47 percent funded.
The solution for states could be to put teachers into a hybrid or defined contribution model like a 401(k), say Buck and Barro.
Laura Brown is a capitol reporter for Hawaii Reporter. Reach her atmailto:Laurabrown@hawaii.rr.com
