Fun With Pension Underfunding
The latest from the Manhattan Institute is titled, “Underfunded Teacher Pension Plans: It’s Worse Than You Think.” As USA Today‘s Greg Toppo reports, it makes the case that state teacher retirement systems are collectively just under $1 trillion short of the amount needed to fund their liabilities. It’s an important report, but one which I fear will go unheeded, since Americans have proven time and again their profound disinterest in bills that will come due in the future.
America (and Britain, come to think of it) is legendary for its ability to call forth monumental efforts and achieve extraordinary things once the crisis has hit. But we’re notorious for avoiding common sense measures before the crisis has hit (think Pearl Harbor). Stuart Buck, co-author of the Manhattan Institute report, explains:
The problem with Pennsylvania, as with many other states, is that when times were flush (the late 1990s or the mid-2000s), legislators did not have the foresight to let pension systems accumulate some savings for possible tough times ahead. Instead, they decided to lower contributions to pension systems and/or increase pension benefits, all on the assumption that high stock market returns would magically pay for it all. But when the stock market falls, the pension systems are left with extra liabilities that no one ever paid for, and the risk ultimately rests with the taxpayer.
That’s a lesson that goes back at least as far as Aesop, but we’ve yet to learn it.
