Collateral Damage of our Pension Systems
Here at the Show-Me Institute, we have harped, for years, on the unsustainability of Missouri’s pension system. We do this for one simple reason: poorly administered funds hurt the people of our state. They hurt the teachers who have to log 28 years of service in order to get more out of the system than they put into it. They hurt young, mobile teachers who leave before vesting. They have the potential to hurt future retirees when they invest in risky assets that could affect their solvency when more of our baby boomer teachers retire and the bills come due.
We can add another group to that list as well: our institutions of higher education. Chad Aldeman of Bellwether Education Partners (which publishes the website teacherpensions.org) has a new blog out wherein he shows the 10 states that are now paying more into their retirement systems than into their institutions of higher education. It’s not a good list to be on, but Missouri is on it.
Aldeman sums it up well:
“What to make of this finding? That depends on your perspective, but over time, I suspect higher education budgets will continue to be squeezed in favor of pensions. On the retirement side, costs will likely continue to rise. Even amidst one of the longest and strongest bull markets in history, pension plans still haven't recovered, and if pension plans fail to hit their 8 percent investment targets every year, they will need taxpayers to continue bailing them out. Higher education will be one of the primary losers from this arrangement.”
The great economist Herbert Stein is known for the quotation “trends that can’t continue, won’t.” The worrisome trend in our pension system can’t continue. Absent reform, it’s only a matter of time until it won’t.
(Data used for map are for FY 2014. Retirement data include state and local employer pension contributions. Data taken from http://crr.bc.edu/data/public-plans-database/pension. Higher education expenses include state general fund and “other state fund” contributions; see Table 12: http://www.nasbo.org/publications-data/state-expenditure-report.