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Underfunded Teacher Pension Plans: It's Worse Than You Think

Tuesday April 2010

Presenters: Josh Barro, Walter B. Wriston Fellow, Manhattan Institute; Stuart Buck, Distinguished Doctoral Fellow, University of Arkansas
Respondents: Joseph Henchmanv, Tax Counsel & Director of State Projects, Tax Foundation; Andrew G. Biggs, Resident Scholar, American Enterprise Institute

From New Jersey to California, public employee pension funds are woefully underfunded. Quite simply, the assets in these funds' portfolios are failing to appreciate at the rate the funds' managers assumed they would. If public employee pension funds used the same assumptions as private sector plans, the aggregate estimates of unfunded liabilities would more than double, from approximately $332 billion to $933 billion. Unless it is addressed, this gap between pensions' payment obligations and their investment assets will result in tax increases and cuts in services—a phenomenon already happening in some states. States that do not take quick action to fix their pension imbalance will see this problem only get worse.

In their new report for the Manhattan Institute, authors Barro and Buck show that, while states must deal with accrued liabilities, several options exist to rein in out of control public pensions and avoid future funding shortfalls.