How Safe Are Teachers' Pensions?
There was a time when public pension promises were considered inviolate. But ever since Vallejo, Calif. filed for bankruptcy in 2008, that assumption has been called into question ("Facing Up to America's Pension Woes," The Wall Street Journal, Jul. 25). Detroit is the latest example.
Why is that so? No matter what state constitutions say about the sanctity of public pensions, Chapter 9 of federal bankruptcy law authorizes a city to restructure its obligations to restore financial health. Because the U.S. Constitution says that the laws of the United States are "the supreme law of the land," that means a city can be forced to reduce its pension obligations.
If that's the case, then teachers' pensions are not as secure as teachers believe, notwithstanding a new Fitch Ratings report on public pensions showing that there have been "generally responsible financial management actions by state and local governments." The few examples to the contrary are the result of state and local governments failing to properly fund promised pensions, even though employees were dutifully making their contributions all along. In New Jersey, for example, the state has regularly paid into the system less than the amount agreed upon by the Legislature and the governor in the annual budgets.
What right-wingers avoid admitting is that retirement systems constitute a small portion of state and local budgets. In California, for example, state and local government pensions are not paid out of general operating revenues. They come from a trust that public retirees and their employers contributed to while the former were working. Teachers pay eight percent to CalSTRS (California State Teachers Retirement System). The California Foundation for Fiscal Responsibility found that public school teachers' retirement benefits are smaller than those of virtually any other type of public employee.
Unlike cities, school districts can't declare bankruptcy. If a district is unable to pay its bills, the state appoints a receiver to balance its books and run the schools in place of the superintendent and local school board ("Jerry Brown's School Bailout," The Wall Street Journal, Oct. 1, 2012). Nevertheless, if enough school districts run up sufficient deficits, I believe that the state will be pressured to consider teacher pension reductions, or at least consider fundamental changes.
In Pennsylvania, teachers receive their retirement benefits from the state retirement plan for school, which is known as PSERS (Public School Employees' Retirement System). The last I heard is that the state Legislature is considering enrolling new teachers, as well as state employees, in defined-contribution plans to prevent future shortfalls ("The Big Squeeze: Retirement Costs and School District Budgets," Fordham Institute, Jun 2013). I expect to see other states going this route.
Despite the media's obsession with the handful of abuses where teachers have gamed the system, teachers have earned every cent of their pensions. If we ever expect to recruit and retain top talent to schools, it's time to stop portraying public school teachers as leeches that suck the financial blood out of states.