Study: Teacher Pension Funds Are Short Billions

A new study found that all 59 funds that cover most teachers face shortfalls, placing a burden on taxpayers to pay nearly three times as much as the funds say they need to balance the books.

(April 14, 2010) — According to a new study, taxpayers nationwide owe public school teacher retirement accounts about $933 billion, nearly triple the amount reported by the plans. The researchers attribute $116 billion of the shortfall to havoc in the stock market.

“States are already caving under the pressures of the recession and this is bad news for governors and state legislatures,” said Robert Enlow, president and CEO of the Foundation for Educational Choice, in a press release. “Every dollar in the red ink column for pensions is one less dollar that is used to educate children.”

The report by the Manhattan Institute for Policy Research, which covered 59 plans for 13 million working and retired educators, is the third study in less than two months to suggest that pension costs of about $1 trillion may overwhelm state and local budgets hurt by falling tax revenue.

According to the study, five plans are 75% funded or better: teacher-dedicated plans in the District of Columbia, New York State and Washington State and state employee retirement systems in North Carolina and Tennessee that include teachers. The worst was West Virginia’s at 31% funded, along with the California’s State Teachers’ Retirement System (CalSTRS), with a $97.5 billion shortfall.

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“This report makes clear that it will be even more difficult than previously thought for states and school districts to honor pension benefit promises to teachers—without putting actual classroom services at risk” says Howard Husock, vice president of policy research at the Manhattan Institute. “Taxpayers and beneficiaries alike need to know the extent of these unfunded liabilities, however—and this report is an important contribution to that understanding.”

Previously, a study by the Stanford Institute for Economic Policy Research (SIEPR) found that the three largest Californian pension funds face a funding shortfall of more than half a trillion dollars, nearly eight times larger than what public employee retirement funds previously estimated and more than six times the value of the state’s outstanding bonds.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

The Democratic chairwoman’s proposals support financial reform of derivatives by putting them on exchanges, which has encountered opposition from banks that make billions in transaction fees on derivatives every year.

(April 14, 2010) — With support from the Obama administration, which has made this one of its priorities for the financial-regulatory bill, Senator Blanche Lincoln, an Arkansas Democrat, said she would propose legislation to the $450 trillion derivatives market. The regulations would require nearly all users of derivative contracts to trade on centralized exchanges, which would improve pricing and increase transparency.

“Speculators will not be exempted and all trades will be reported to regulators and the public,” said Lincoln, Democratic chairwoman of the Senate Agricultural Committee, according to The New York Times. Additionally, under Lincoln’s proposed changes, the Commodity Futures Trading Commission, which regulates many derivatives, would have greater oversight — any agency that is used for the trading of swaps contracts will be required to register with the C.F.T.C.

Rules on derivatives have prompted major lobbying following the 2008 global meltdown, as trading of derivatives is one of Wall Street’s most profitable businesses that have been largely unregulated until now. According to Lincoln, derivatives regulation is essential to prevent future bailouts of Wall Street. The Democratic chairwoman won support from Olympia J. Snowe of Maine, a Republican senator, who has pushed for stronger regulation of derivatives. On the other hand, seeking to guard their profits, Wall Street giants including Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley have been allegedly trying to stymie provisions of the bill. Pension funds would also be impacted by the regulation, as industry lobbyists argue it’s unfair to thwart the ability of fund executives to invest.

“Watering down and delaying reform can have a major benefit for” the banks, said Robert Litan, an economist and former Clinton administration antitrust official who now follows financial regulatory matters at the Kauffman Foundation, a nonprofit research group focused on entrepreneurship in Kansas City, The Wall Street Journal reported.

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Lincoln’s plan is expected to be unveiled as soon as the end of the week, with the Senate hoping to take up financial regulation reform by the end of the month.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742