Many teacher pension funds underfunded

By Kimberly Hefling

Associated Press

Published: Thursday, March 15 2012 11:41 p.m. MDT

WASHINGTON — As a new generation of teachers replaces retiring baby boomers, financially strapped states face a quandary — what to do about teacher pensions.

A majority of states' teacher retirement funds are underfunded, some significantly below rates considered solvent, according to a recent analysis by the National Council on Teacher Quality, a research and policy group that seeks to improve the quality of teachers. The situation has stoked political fights in statehouses across the country as legislators weigh options such as moving teachers from a traditional defined benefit pension to a 401(k)-style plan, raising the retirement age or making teachers wait a decade to be vested in their plans.

The shortfalls are reflective of what's happening with public state and local pensions nationwide, with teacher pensions included in a more than $660 billion shortfall in what's been put aside for such retirement benefits and what is owed, the Pew Center on the States has estimated. Many states offer separate pension plans for teachers, while others include them in broader plans that cover other government workers.

What's happening with public pensions is mirroring private industry. Companies have been abandoning traditional benefits because of the cost and the risk, and replacing them with 401(k) type plans, which are more portable but transfer more of the risk to the worker.

In education circles, the issue takes on special significance because of its impact on kids. Pension policies affect the ability of districts to hire and retain teachers, and funds used to shore up pension funds can mean tax hikes or come at the expense of other areas like education. As legislators weigh what to do, an estimated 1 million teachers are expected to retire within the next decade.

The economic downturn has helped fueled the pensions shortfalls; states in better economic times expanded benefits that today are difficult to pay for and sometimes opted not to make payments into the systems.

One current pension battleground is Kansas, where Republican Gov. Sam Brownback wants to transfer new teachers and other government workers to a 401(k)-style plan. The Kansas Public Employees Retirement System projects an $8.3 billion gap between anticipated revenues and benefits promised to workers through 2033.

In California, where the teacher pension fund has more than $50 billion in unfunded liabilities, Gov. Jerry Brown, a Democrat, has presented a pension-reform plan that would increase the retirement age for new, non-public safety employees like teachers to 67. It would also require employees to contribute to at least 50 percent of their retirement costs and move new public employees into a hybrid plan that blends a traditional pension with 401(k)-style program.

Gov. Robert Bentley, a Republican, announced a plan earlier this month in Alabama to set the retirement age for new teachers and others in the state retirement system at 62. Currently, teachers can retire in their 40s.

Teacher unions in statehouses are pushing back against many of these efforts, especially proposals to move from defined benefit pensions to the 401(k)-style plans. They say the strains are exaggerated by critics with an ideological agenda and that the pensions are an important part of compensation for a well-educated population that's underpaid. They also argue that defined benefit plans are a recruitment tool that helps districts attract good teachers and maintain a stable work force.

Unions also contend that states might not realize the savings they expect by shifting to a 401(k)-style plan. They point to Alaska, where the legislature in 2005 took the state from a defined benefit program to defined contribution. The projected savings have not yet been realized, and the state has seen its unfunded pension liability rise to an obligation estimated at about $11 billion.

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