Report: Teacher retirement underfunded
Teacher retirement systems in Louisiana and elsewhere are “severely underfunded” and face a wide range of other problems, according to a national report.
“The structure of teacher pension systems in the United States is, by and large, untenable,” says a report by the National Council on Teacher Quality, a Washington, D.C. group that calls itself a nonpartisan research organization.
Unfunded liabilities for teacher retirement systems total $325 billion, the report says, including $10.8 billion in Louisiana.
The study, which was released last week, says Louisiana’s figure is the 10th highest in the nation.
It says that state and local governments “have knowingly contributed less than their required portion to fund promised benefits, and lower than expected investment returns have exacerbated those actions.”
The health of pension systems, which is a national issue, is relevant to teachers and other taxpayers.
Current and former educators rely on the soundness of the fund for yearly benefits, which average $24,305 here.
Other taxpayers want to make sure the systems are not so out of balance that they drain tax dollars that would otherwise be used for public schools, health care and higher education.
The Teachers’ Retirement System of Louisiana represents about 152,000 current and retired teachers and other educators.
It is the largest in the state and was set up in 1936.
Maureen Westgard, director of the TRSL, did not return a call for comment about the report.
Lisa Honore, a spokeswoman for the office, issued a prepared statement that noted the teachers’ system financial status stems from underfunding in the past.
The statement notes that most of the debt has to be paid off by 2029 under a constitutional amendment that voters approved in 1987.
But House Retirement Committee Chairman Kevin Pearson, R-Slidell, said the $10.8 billion in unfunded liabilities is worrisome, especially knowing that more debt can be added in the next 17 years aside from what the state is required to pay by then.
“That certainly should be a concern,” Pearson said.
Gov. Bobby Jindal proposed a wide range of pension changes earlier this year.
However, the only major one that won final approval would change pension plans for state employees and higher education employees hired July 1 and after.
Teacher members of the TRSL would not be affected.
The new law is also under a legal challenge in the 19th Judicial District Court.
Adding to the problem here and elsewhere, the report says, is that state officials set unrealistic assumptions on investment earnings, which can make the systems appear healthier than they are.
Most assume a rate of return of between 7.5 percent and 8.25 percent, the study says.
While that may happen over a long period, the report says, “no pension plans are meeting those rates of return in today’s economy.”
“Unfunded liabilities and unrealistic assumptions on rates of return make pension systems houses of cards that are bound to collapse,” a news release that accompanied the report says.
The statement from officials of the TRSL says they are in the process of trying to trim the rate from 8.25 percent to 8 percent.
Pearson said that, in his experience, state officials generally err on the side of overestimating what its investments will generate, which distorts the picture.
In another area, the report gave Louisiana high marks for offering portable pension systems.
TRSL members with defined benefit plans — they guarantee a specific monthly payment for life — can transfer service credit with most other retirement systems in the state, among other options.
The study faulted the state, and lots of others, for requiring that teachers be in the system for more than three years to be vested.
The requirement is five years in Louisiana.
In their prepared statement, TRSL officials said several pension bills approved by the Legislature in recent years have made the system more sound.
That list includes;
- A 2007 constitutional amendment that requires laws affecting the retirement system to spell out funding sources to pay for the change.
- A 2010 constitutional amendment that requires two-thirds support of the Legislature for approval of any retirement bill that carries a cost.
- A 2011 constitutional amendment that will require a certain percentage of future budget surpluses to help retire the debt of the teachers’ retirement system.