Teachers looking to retire in big numbers due to layoffs or other reasons nationwide could find that the money they expect to finance their futures is not all there.
Research into the nation's teacher pension programs by the Foundation for Educational Choice and the Manhattan Institute suggests that Georgia and other states have underfunded the retirement plans by billions of dollars through the use of conservative accounting methods reflecting current market trends instead of future expectations of investment returns.
But officials with the Teacher Retirement System of Georgia say they made the appropriate adjustments when the nation's economy turned downward, and even the pension study suggests that the state's program is among the best funded in the country.
Some teachers say they don't know who to believe.
But if researchers are correct, they say gaps in pension funding could lead to more teacher reductions, larger class sizes and educational program cuts over time to cover promised benefits.
“Public pensions are permitted to base the amount of money that they need today to meet their future obligations on a higher performance of stock,” said Josh Barro, a fellow at the Manhattan Institute studying fiscal policy. “That allows sponsors to cut their contribution rates and hope that the market performs. Right now the taxpayer bears the risk.”
The study claims that funding gaps for teacher pensions are vastly underreported. The research suggests that Georgia’s program is funded at a level of 67 percent, rather than the 92 percent reported by the state.
Teacher pension liabilities for all 50 states total about $933 billion -- nearly three times more than reflected on balance sheets -- which could bankrupt some state budgets as they struggle to meet retirement obligations. Fifty-nine pension plans studied faced shortfalls, with West Virginia faring the worst at only 31 percent funded.
“To overcome this, the Dow Jones industrial average would have to double overnight to make up for the present underfunding of these plans,’’ Barro said.
The findings, released this week in Washington, D.C., have alarmed some teachers approaching retirement and leaders of professional groups protecting their rights, including some in Georgia.
"This report raises serious questions that need to be addressed -- first and foremost by the Teachers Retirement System," said Tim Callahan, a spokesman for the Professional Association of Georgia Educators. "We have long been told by the TRS that we have one of the most actuarially sound plans in the nation. We need to hear from those leading the TRS fund that this is still the case."
The report recommends that states could save money by switching new teachers to a 401(k) plan so they, like employees in private industry, can assume the bulk of the risk for their retirement.
Donna Aker, a math teacher for 28 years, said the steady benefits package teachers earn helps to make the demanding job attractive.
“If this was happening at a bank, there would be an outcry," Aker, co-president of the Gwinnett County Association of Educators, said of the study's findings. “We are public service employees. We are getting a different story from our pension plan and our state government. Who’s lying? Who knows?”
Georgia’s teacher pension officials, however, say educators can be assured that their retirement benefits are solid.
During the recession, the TRS -- which uses standard government accounting methods to predict fund performance -- grew more conservative about forecasting returns on investments. For the past two years, it has slowly increased contribution rates to absorb shortfalls instead of slashing them like some states. The study ranked Georgia among the 10 best-funded programs.
"Georgia's teachers are putting in more to their retirement than any other state employee," said Jeff Hubbard, president of the Georgia Association of Educators, who is confident about the stability of TRS investments. "They are doing a great job even in this economic downturn. This is a multibillion-dollar operation, and they have us in great fiscal shape.”
Hubbard said teachers are not likely to retire or leave their jobs at once and require immediate pay tomorrow.
For every dollar that a teacher gets, he or she paid 5 percent into the pension plan in 2009 and 5.25 percent in 2010. The tax dollars contributed to the plans by employers was raised from 9.28 percent to 9.74 percent.
“Georgia has been making 100 percent of the annual required contribution rates,” said Jeffrey Ezell, executive director of the TRS, adding that rates will rise again in 2011.
Ezell said the state's pension program focuses on future fund performance using market history, among other things, to make predictions. "It’s not just a snapshot today, which is what the people in this study [use] to determine liability," he said. "A company on any given day could go out of business. The state of Georgia is not going to go bankrupt tomorrow.”
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