Council Defends Teacher Pensions

The article entitled “Why Teacher Pensions Don’t Work” compared teacher pensions’ promises to the Ponzi scheme orchestrated by Bernie Madoff. In its letter to the editors of the WSJ, NCTR said: “The difference between Bernie Madoff, who claimed he was getting 8 percent returns on his clients’ investments, and the nation’s public pension plans, is that Madoff was pretending to make his number, while public pension plans have actually been earning their assumed 8 percent return — and then some.”   

The Council noted that for the 25 years ending 12/31/09 – a period that has included three economic recessions and four years when median public fund investment returns were actually negative – public pension funds’ median investment return was 9.25%. Recent analysis has also shown that historical investment experience over 20-, 25- and 30-year time periods also exceed this assumed 8% number. For the year ended 6/30/10, the median return for public pension funds was 12.8%.   

In addition, the Council pointed out that teacher pensions are pre-funded, which means that retirees’ benefits are paid from pension trust fund assets, and not on a pay-as-you-go basis from state and local governments’ general revenues. The value of these pension assets has rebounded sharply since their mid-2009 lows, and now totals over $2.73 trillion, their highest level in two years. In addition, the majority of these trust fund monies – 72% for the period from 1982 to 2008 — are made up of employees’ contributions and investment earnings.   

“Consequently, in 2008, the most recent year for which complete US Census Bureau figures are available, while government sponsors contributed $82 billion to pre-fund their pension plans for the future, the funds themselves paid out a total of $175 billion in benefits for today’s retirees – a $93 billion difference that states did not need to divert from their operating budgets thanks to these pre-funded pension plans,” the letter said. “And of this $175 billion in benefits paid to retirees, approximately $126 billion came from their own paychecks, when these retirees were active workers, and from investment earnings on employee and employer contributions; only 28% was comprised of taxpayer dollars.”