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Teachers' Pensions Are Precarious

Faced with a looming financial crisis, states are blaming public employee pensions for their predicament ("California's top court will review major public pension ruling, Los Angeles Times, Nov. 23). It's estimated there is nearly a $1 trillion gap between what states and workers have put into the systems and what the states owe in retirement benefits. But since this column is about education, I'll confine my remarks to the $325 billion in unfunded teacher pension liabilities that the National Council on Teacher Quality estimates.

It's in this regard that California serves as a case in point.  Although the state Legislature passed a law in 2012 that cut pensions, raised the retirement age for new employees, and prohibited pension spiking (inflating pay during the period in which retirement is based), the issue was not settled. The California Supreme Court said on Nov. 22 that it will hear arguments giving state and local governments new power to alter employee pensions.  The essence of the argument is that pensions need only be "reasonable" - not immutable.

I'm not a lawyer, but I maintain that the promises made to teachers constitute a contract.  If lawmakers fail to fully fund the promises made, even though teachers have fulfilled their end of the bargain, then there is a breach of contract.  Why should teachers be penalized when they acted in good faith?  I taught for 28 years in the Los Angeles Unified School District and regularly contributed to STRS (State Teachers Retirement System).  Although any changes will not affect retired teachers in California, those made will set a dangerous precedent.

Pension systems by their very nature involve assumptions.  Teachers pay in at a stipulated rate.  The money is then invested.  If all goes according to plan, there is enough left to cover the promises made.  The big unknown is the future investment returns on pension assets.  Too often, the calculations are unrealistically high, which creates a shortfall. 

One of the solutions is to eliminate defined benefit plans for teachers entirely and install a defined contribution plan.  Perhaps that will appeal to younger teachers.  But if given a choice, I think the majority of teachers would opt for the traditional plans.  I know that I would.

 

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The opinions expressed in Walt Gardner's Reality Check are strictly those of the author(s) and do not reflect the opinions or endorsement of Editorial Projects in Education, or any of its publications.

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