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Report: Teacher pension plans drowning in red ink nationwide

The accrued deficit that now plagues Louisiana’s teacher pension plan is part of a 40-state trend, according to a report released Thursday by the National Council on Teacher Quality.

The Teachers Retirement System of Louisiana’s $10.8 billion deficit is part of a larger sea of red ink resulting from risky investments, erroneous market predictions and a history of inadequate contributions. Nationwide, teacher pension plans are underfunded to the tune of $390 billion, and only about 10 state pension plans are adequately funded, the report surmises.

Since 2008, pension officials from the 40 states with deficits have raised the rates of contributing school districts, the report said, meaning that “already strapped school systems are required to commit increasing shares of their current funds to pay for retired teacher benefits.”

In November, The Lens reported that public school payments to the pension plan have risen in the last three years, from 15 percent of a school’s payroll in the 2008-2009 school year to 24.5 percent this school year.

Citing rising costs, a majority of New Orleans charters have opted out of the pension plan. But state law requires traditional districts, such as the Orleans Parish School Board, to contribute. Last year, the school board forked over $4.4 million from its general fund to cover pension obligations, and the charters that have remained in the system paid about $21 million.

Deficits aside, the report lauded Louisiana for offering new hires a cash-balance plan. A key component of Gov. Bobby Jindal’s controversial pension overhaul, a cash-balance plan combines the personal control and portability of a private 401K account with a safety net that guarantees a minimum rate of return regardless of market fluctuations.

The report erred, however, in saying that the cash-balance plan is optional for both veterans and new hires in Louisiana. In fact, college and university teachers hired after July 1, 2013, are required to participate in the cash-balance plan, according to the new law. Secondary school teachers hired after that date may also opt into the plan.

Here are some of the report’s recommendations for pension plan reform:

  • Offer teachers the option of a flexible and portable defined-contribution pension plan.
  • At a minimum, ensure that defined-benefit pension plans are as portable, flexible and fair to all teachers as possible.
  • Adjust unrealistic assumptions about future market performance.

To view the full report, click here.

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