Pension Funds Are Making a Comeback
By Alain Jehlen
NEA President Dennis Van Roekel today urged legislators to use the most up-to-date figures on public pension plans before making decisions that could threaten the financial security of educators when they retire.
New figures indicate that funds are making a strong comeback after getting slammed by the Wall Street slump.
“Despite a drop in asset levels stemming from the devastating 2008 stock market crash, pension funds across the country are recovering,” Van Roekel said. “By the end of 2010, state and local government retirement systems were reporting strong investment returns.”
Here are a couple of little-known facts about public pensions:
- The average educator retiree has a $21,000 pension.
- Less than three percent of state and local spending goes to fund pensions.
Van Roekel’s comments were in response to two major reports that took the temperature of the nation’s public pension funds—and came up with very different readings.
Yesterday, the Pew Center on the States warned that pension funds are in tough shape, but the day before, the National Conference of Public Employee Retirement Systems (NCPERS) said the funds are on the mend, bouncing back well from the effects of the economic downturn.
Why the difference?
Pew focused most of its attention on the 2009 fiscal year, near the bottom of the recession. NCPERS focused on the following year, with the recovery slowly underway. Pew and NCPERS also used different standards for what proportion of future retirement payments ought to be stashed away as of now: 80 percent, said Pew; 70 percent, said the ratings company cited by NCPERS.
The PCPERS report notes that only one quarter of pension fund revenue comes from public employers—the rest comes from employee contributions and investment income. The report said the future return that pension funds assume in their projections—averaging 7.7 percent—is below both the 20-year average return of 8.2 percent, and the one-year average of 13.5 percent.
Pew was right, however, to point out that some state governments caused problems when they deliberately failed to fund their pension plans.
The dueling pension reports come at a time when some state legislatures are looking for ways to pay retirees less, hoping to plug budget deficits caused by the recession.
“Guaranteed pensions remain the most economical and efficient way to ensure that Americans who have worked all their lives remain financially secure and self-sufficient during their retirement years,” Van Roekel said.
He cautioned elected officials and policymakers to make sure they are making decisions based on facts, not misinformation. “The truth is that public pension funds are not the cause of state budget crises—Wall Street greed is the real culprit,” Van Roekel said.
Read the full report on the recovery of public pensions.