Would Pension Plans Be Fine If They Were (Magically) Fully Funded?

We have two new briefs out this month, one looking at how pension plans affect short-term workers, about half of all teachers, and another looking at the effects on medium- and longer-term workers, another 30 percent of all teachers. Read the reports to get all the details, but the summary version is that most teachers are making a bad trade–they suffer from low salaries while they work in exchange for the promise of better retirement savings when they leave. For most teachers, that promise never becomes a reality.

One common response to our pension work, and even to this new set of research, has been to argue that pension plans would be fine if they were fully funded. That is, if the stock market didn’t have recessions, and if we could somehow make politicians stick to their funding promises, and if state predictions about longevity and salaries and inflation and all other sorts of other variables were perfectly accurate, then all our problems would be solved.

There are 968 billion reasons why this is a magical argument, of course, but even if we somehow could erase the funding problems, pension plans would still have enormous flaws. That’s because pension plans don’t just have funding problems; as we focus on in our work here at TeacherPensions, pension plans also have design problems. Improved funding could help the situation–policymakers might stop cutting teacher benefits and may even start to reverse the slide. But there are fundamental, structural problems here too. Wishing away the funding problems won’t change the fact that current defined benefit pension plans are simply not delivering sufficient retirement benefits to the majority of the teaching workforce.

– Chad Aldeman

This first appeared on TeacherPensions.org

Last Updated


Notify Me When Education Next

Posts a Big Story

Business + Editorial Office

Program on Education Policy and Governance
Harvard Kennedy School
79 JFK Street, Cambridge, MA 02138
Phone (617) 496-5488
Fax (617) 496-4428
Email Education_Next@hks.harvard.edu

For subscription service to the printed journal
Phone (617) 496-5488
Email subscriptions@educationnext.org

Copyright © 2024 President & Fellows of Harvard College