Teacher Retirement

Public worker pensions are in trouble across the country - and there's little sympathy these days for people who generally have a better gig than Social Security. Of course, remember that public workers neither pay into nor receive Social Security, so their pension is all they have. And in many places the public pensions are written into the state constitutions, so the state is constitutionally mandated to pay, regardless of what revenues must be raised to do so. And that can be a recipe for fiscal disaster.

I tend to get into trouble with public workers when I argue that the retirement benefits for many are untenable for the future. Retiring at the age of 55 and drawing 80% of salary for thirty years is a hell of a deal for workers, but ultimately not a sound financial strategy for the whole system. Workers will claim they made a deal to accept lower wages in exchange for better benefits and earlier retirement. Somehow, I don't see that as the official statement on the contracts over the years, though workers have accepted it as gospel.

The reality now is that public workers are not necessarily accepting sub-market wages in exchange for a nice retirement deal. Certainly, statistics show higher wages in the private sector for comparable education and experience. But that's not really the point. There is no guarantee that all public workers would be making more if they hadn't "sacrificed the big bucks" for public service. And, wages they "could be making" are really beside the point.

The point is no retired teacher should be drawing a $150,000 a year in pension for thirty years.

Retirement Funds and Government

Well, it appears that TRS, the teachers retirement system in Illinois, is in rough water with the recent economic downturn. That news comes on top of the revelation that TRS is only 56% funded. Of course, when I moved to Colorado, I heard from advisers out here to "leave your money in Illinois," and that made sense considering the projected payouts. Now, I might be wishing I'd taken the money and run. Of course, Colorado's PERA system is facing funding shortfalls as well. Perhaps I'd be better off if teachers paid into Social Security. Hmmm. All
these developments tend to bring criticism of the government and cries about the evils of socialism. However, I'm not complaining. It is what it is.

My thoughts on leaving my money in Illinois, rather than switching it PERA or investing it myself are simple. I made the decision to do so based on a fair amount of market research. Subsequently, the money could have been in worse shape if I'd pulled it and invested it myself (or better shape depending on my savvy). Ultimately, the money I left in Illinois is one source of my retirement, the money I put in PERA is another, and the money I invest myself is a third. There is also the small sum I will get from Social Security from non-teaching work. Thus, I feel pretty good about all my prospects precisely because I am so well-informed (and diversified), and I am not lamenting my decision to leave the money in Illinois. It was an investment decision, and like all, it had its risks and rewards.

There is a point to be made about the misuse of funds, as well as underfunding, and I'm no fan of what has happened to Illinois government under Blagoivich. However, it's truly no worse than if I'd invested it in AIG, Merril Lynch, IndyBank, Ford, WorldCom, Enron, etc. Governments aren't more likely to mis-invest the money than the private sector. Of course, once Enron folded, investors were left with no one to sue. The government funds, on the other hand, still have to answer to voters and taxpayers. When my Ford stock goes bust, or when the railroads abdicated their pension responsibilities, the free market leaves investors with nothing. Those pensions were eventually picked up by the government. And, Social Security will always be honored - Enron stock is worthless. Additionally, I should note that Social Security was never meant to be the sole retirement income for people. It has certainly gotten off track.

If I won the lottery these days, I'm inclined to take the payouts over twenty years because I know I will see the full amount. If I took a lump sum and invested it, I could lose half my value. The government (as noted by President Bush to be the only entity that can solve the mortgage problem precisely because its stability) offers consistency and a responsible party that can't walk away. Voters know where to find them.

I am fiscally conservative and a free market proponent, but I'm not naive about it. I believe the free market is the best answer to most questions, and free trade will do more than protectionism. I am heavily invested in, knowledgeable about, and supportive of free market capitalism. However, like both Adam Smith and Teddy Roosevelt, I acknowledge the pimples on the system, and accept the need to occasionally regulate what TR called its "more unsavory elements."