Well, at least they’re honest – some of the time.
As preliminary data on the State Teachers Retirement System (STRS) for fiscal year 2011 is released, STRS is finally starting to see the light: Their pension system is failing. And its going to take more than just tinkering around the edges to fix it.
Despite earning its “strongest investment return in nearly three decades” in 2011, STRS’ pension fund still managed to sink to a 58.8 percent funding level, down from 59.1 percent a year earlier. The amortization window for its unfunded liabilities, unsurprisingly, remains at infinity, meaning STRS will never be able to pay off what it owes. A dying pension fund just put another foot in the grave.
STRS will argue that the use of actuarial “smoothing” accounting practices cover up some of the gains in 2011. While there’s some validity to the claim, its obvious that actuarial smoothing did not put STRS in its current fiscal crisis, nor will it get it out.
STRS admits two points that Buckeye has been making for years. First, STRS retirees are living longer than expected and are collecting benefits for a longer period of time. With increases in life expectancy, it is entirely possible for STRS members to spend more years drawing retirement benefits than actually teaching in the classroom. For instance, a teacher who begins teaching at age 23 would be eligible to retire at 53 with full pension benefits that will increase three percent annually until death. With many individuals living well into their 80s and 90s, these long-living retirees would draw pension benefits for 30 years plus, with total benefits well exceeding $1 million.
The second problem STRS admits is the growth in teacher retirements. As retirees enter the retirement rolls at an increasing rate, the total pool of pensioners grows and greater payouts must be made to cover the larger number of beneficiaries. The money is pouring out faster than it can be put back in.
What’s left is exactly what we have now. A failing pension system, buried beneath nearly $40 billion of its own liabilities, admitting that without significant changes, it will eventually be unable to pay benefits. And due to the nature of defined benefit retirement systems, it is taxpayers who are ultimately responsible for picking up the tab.
STRS has already made it known that it expects taxpayers to start bailing out the system. In its 2010 Comprehensive Annual Report, STRS asks that taxpayers contribute 2.5 percent more, on top of the existing 14 percent of total teacher payroll, to begin to shore up the failing system. But even these reforms will not allow STRS to pay off its liabilities within the statutorily required 30-year window.
As the debate on public pension reform heats up this fall, legislators have a choice. Either make tweaks to the current system, a process that has led us to the current predicament, or take the bold step of introducing a mandatory defined contribution system which begins to wind down the practice of runaway liabilities and taxpayer bailouts.
STRS sees the writing on the wall. It’s starting to talk the talk, but it awaits to be seen if it will walk the walk and honestly address the hard truths about comprehensively reforming its failing system.