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Debt worsens for teachers’ retirement plan

Teachers are retiring sooner, living longer, lawmakers told

By Phil Kabler

West Virginia News, September 8, 2003

LEWISBURG — Legislators learned Sunday that the state Teachers’ Retirement System needs even more money than they thought to meet its obligations.

Harry Mandel, actuary for the state Consolidated Public Retirement Board, told a legislative interim committee that the plan’s unfunded liability is actually $253.6 million larger than had been projected.

He told the Joint Standing Committee on Pensions and Retirement that, until this year, numbers used to project the long-term funding needs for the system had not been updated since 1983 — and said many of the assumptions from then proved wrong.

One assumption projected a huge spike in mortality rates for retired teachers, beginning at age 80. In other words, the 1983 study assumed most retirees would die in their early 80s, reducing demand on the pension fund.

“That’s not happening,” Mandel said.

The new study also found that teachers are retiring much sooner than the 1983 study had projected, putting additional pressure on the Teachers’ Retirement Fund. The teachers’ fund accounts for the vast majority of a state retirement system that is underfunded long-term by more than $4 billion.

Lawmakers will have to come up with nearly $40 million additional funding in the 2003-04 budget to correct the erroneous projection.

“We’ve got to make sure our projections are correct,” acting Administration Secretary Tom Susman told the committee.

During much of the meeting Sunday, committee members picked the brain of Wallace Harris, senior deputy director of the Virginia Retirement System.

With assets of $34.6 billion, Virginia’s teachers’ and public employee retirement plans are funded between 80 and 100 percent, Harris said. West Virginia’s Teachers’ Retirement System, which has less than 20 percent of the funds it needs to pay out pensions over time.

State pension plans don’t have to be 100 percent fully funded, Harris said, since it is assumed states will never go out of business.

However, he added, “I’d feel uncomfortable with anything under 50 percent. ... I would think you need to make progress on paying down your unfunded liability.”

Committee members did get some good news Sunday. State pension funds grew by 4.9 percent in the 2002-03 budget year, as the stock market began to recover from the recession.

“There was a significant movement in the market late in the [budget] year,” Teresa Robertson, acting co-executive director of the Retirement Board, told the committee.

Harris told the committee Virginia was not immune from the economic downturn. He said Virginia’s pension fund dropped from a peak of $42 billion to a low of $31 million during the economic downturn.

“That was $2 billion more that they lost than we have,” Delegate Mike Hall, R-Putnam, said of Virginia’s downswing.

Legislative interim meetings continue in Lewisburg through Tuesday.

On Sunday evening, legislators partook in a dining tour of downtown Lewisburg, featuring stops at the historic Carnegie Hall, the newly restored city hall, and concluding with dessert and entertainment at the Greenbrier Valley Theatre.