The California Policy Center
By Larry Sand
May 5, 2020
Willfully blind to the reality of the fiscal impact of Covid-19, the teachers union is demanding billions from the already beleaguered American taxpayer.
Long after the coronavirus fades into history, there will be many lingering effects. And high on that list very well may be the toll on public employee pensions and the beleaguered taxpayers who pay for them. Most teachers’ and other public employee pensions come in the form of a 403(b), a defined benefit plan whereby workers are guaranteed a monthly pension payment for the rest of their lives after retirement. But according to Moody’s Investors Service, U.S. public pension plans are facing investment losses approaching $1 trillion because of the economic fallout from the coronavirus. As Martin Lueken, Director of Fiscal Policy and Analysis at EdChoice, points out, states were already facing more than $1 trillion in unfunded liabilities. Lueken writes that in the wake of the COVID-19 recession, pension debt accrual will significantly worsen. While the typical pension plan assumes about a 7.25 percent rate of return on investments, we will not come close to that number going forward. A major contributing factor will be falling interest rates, which is one of the hallmarks of a recession.
Not surprisingly, the picture is particularly grim in California. Chad Aldeman, editor of TeacherPensions.org, takes a close look at CalSTRS, the state teacher retirement system. He notes that in 2008, CalSTRS assumed it would earn 8 percent on its investments. But due to the recession, it lost 4 percent. Then in 2009, it again assumed it would earn 8 percent, but suffered a 25 percent loss.
So in an attempt to make up for the shortfall, Assembly Bill 1469 was passed in June 2014. University of Missouri researchers Corey Koedel and Gabriel Gassmann explain that the law calls for “the (contribution) rate to nearly double from 18.3 to 35.3 percent of salaries between 2014 and 2021. Although all three contributing parties – teachers, school districts, and the state of California – are experiencing rate increases, (taxpayer-funded) school districts are most impacted. In 2013-14, school districts contributed 8.25 percentage points of teacher salaries to CalSTRS and by 2020-21, this rate will rise by over 100 percent, to 19.1 percentage points.”
The public/private disparity is worth noting. Retirement costs for government workers are more than double what they are for their private sector counterparts. One way out of the pension mess would be to replace the 403b with a much more taxpayer-friendly 401(k) – a defined contribution plan that is very common in the private sector – in which an employee’s benefit is equal to his own contributions, those of his employer, and whatever earnings the investments accrue. But the public employee unions, of course, will fight tooth and nail to stop that from coming to pass, even though to receive the benefit, teachers must stay in the profession for many years and reach a certain age.
The teachers unions continually grouse about underfunding in education, but never acknowledge that pensions are gobbling up more and more money that could go into the classroom. The situation has been bad for years, and with the Covid-19 recession upon us, it is bound to get much worse. No matter. The National Education Association is clamoring for “an additional $175 billion to stabilize education funding—the $30.7 billion authorized thus far is not nearly enough.”
We are in a recession. Many taxpayers are out of work. People have lost incredible amounts of money in the stock market. Businesses are closing. The tax base is crumbling. And all NEA can think of is “More money for us!” Data from the U.S. Department of Education show that average inflation-adjusted spending per public school student is near an all-time high. But while money is finite, greed for the teachers unions is in endless supply.
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Larry Sand, a former classroom teacher, is the president of the non-profit California Teachers Empowerment Network – a non-partisan, non-political group dedicated to providing teachers and the general public with reliable and balanced information about professional affiliations and positions on educational issues. The views presented here are strictly his own.