There’s no easy fix for the shortfall facing the teachers’ pension system, but acting fast will make the solution less painful than delaying action for political expediency.
The outlook is far from bright for the Montana teachers’ pension system, which will run out of cash in a little over a half-century if the imbalance between contributions and benefit payouts isn’t corrected.
Public employee pensions are becoming, if they aren’t already, anchors around the necks of various municipalities and other government agencies from coast to coast, and in some sense Montana is lucky that the situation here isn’t worse. As it is, actuaries last week said the Montana Teachers Retirement System needs an immediate infusion of some $633 million, lest it run out of money around 2055.
There’s no easy answer. Either benefits to retired teachers will have to be cut, which has happened in other places but which strikes us as unfair to teachers who were hired on contracts that specified particular contribution and benefit levels; contributions will have to be increased, which may be what’s on the horizon for newly hired teachers at the very least if it’s not the case for teachers already in the system; or the Legislature will need to earmark a lump sum of cash to extend the future of the system.
The sunny (or at least not completely cloudy) side of the picture is that there’s time to fix the system — but the sooner something is done, the less it will cost. In that view, the pension fix will be a good test for everyone involved, from taxpayers to teachers unions to lawmakers: Who’s willing to endure some pain now rather than kicking the can down the road, when the fix will hurt even more?
The pension problem should also be a lesson in revenue estimating (sound familiar?), as high expectations for what the pension investments would earn before they were paid out proved to be too optimistic. The long-term deficit for the fund, or its “unfunded liability,” now sits at $1.8 billion, up some $200 million in just 12 months as investment returns have suffered. It’s dangerous to count on the stock market for consistent returns, and fixed income investments like government bonds have historically feeble interest rates today. Best to be conservative when guessing how fast an investment portfolio will grow.
The next governor and Legislature must find the solutions and we look forward to hearing their recommendations, because the sooner action is taken, the easier it will be to put the teachers’ retirement fund back on stable ground for much more than the next generation of teachers.