Report: Teacher pension plans shaky
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Pennsylvania and its school districts face a daunting enough task meeting significant hikes in teacher pension contributions.
Now a Manhattan Institute report says the situation in Pennsylvania -- and across the country -- may be worse than it appears.
The New York-based organization says nationwide teacher pension liabilities would be nearly three times what state officials reported on balance sheets in 2007 or 2008 if they used accounting standards similar to those used by private pension funds.
According to the institute, the Pennsylvania Public School Employees Retirement System in 2007 calculated that its pensions were 86 percent funded; Manhattan Institute figured it at 54 percent, which was the average for the nation.
The lowest one was the West Virginia Consolidated Public Retirement Board, where the board showed it was 50 percent funded and the institute calculated 31 percent.
Even after the institute made its adjustments, pension funds were still at least 70 percent funded in six systems, the highest of which was the District of Columbia Retirement Board at 84 percent.
Josh Barro, Walter B. Wriston fellow at the institute, said teacher pension funds in many states, including Pennsylvania, use an assumption that assets will grow 8 percent each year. But he said private pension funds tie their obligations to high-quality corporate bonds, which Mr. Barro said usually amounts to about 6 percent.
The private pension funds purchase insurance, which pays at least a portion of pensions should the company default on its pension obligations, he said. In the public pensions, the taxpayers have to pay the bill if investments don't earn as much as expected.
PSERS press secretary Evelyn Tatkovski said PSERS officials had not read the report.
She noted that PSERS in 2008 began reducing its assumed rate of return from 8.5 percent to 8 percent by last summer. She said the figure is reviewed annually with actuaries.
Over the past 25 years, she said, the fund earned an annualized rate of return of 9.23 percent. She said the most recent PSERS figures show the plan is 79.2 percent funded.
Rather than the Manhattan Institute report, Ms. Tatkovski said, "Our efforts and resources right now are focused on resolving the current funding issue facing the system."
The PSERS rate for employer contributions -- shared by the state and school districts -- will rise from 4.78 percent of payroll to 8.22 percent of payroll in 2010-11.
By 2014-15, the rate may go as high as 33.6 percent of payroll. The employer contribution rate has varied over the years, with it being set particularly low when investments were growing.
The employee contribution averages about 7.3 percent.
The upcoming increase in the employer contribution is exerting much pressure on school districts as they plan their budgets for the upcoming year.
PSERS is among those trying to get the Legislature to address the issue.
First Published April 14, 2010 12:00 am