“Concerns” about the financial health of teacher pension funds and their role in the labor market for teachers are addressed in this paper by focusing on the accounting and actuarial practices public pension funds use to both avert financial trauma during market downturns and discourage financial optimism during market upturns, possibly leading to reduced employer contributions or unfunded benefit improvements. Retirement plans do not need to be redesigned for a younger, itinerant teacher workforce because teacher turnover for brand new teachers has actually changed little over the past two decades and that turnover was higher 40 years ago. Teachers are already in the midst of their retirement surge, well ahead of the baby boomers they taught. Unlike Social Security, teacher retirement system benefits are paid for in advance by contributions they and their employers made over decades and the investment earnings of those contributions. Teacher retirement systems are still as close to fully funded as they have ever been historically.

This paper demonstrates that adapting private sector retirement practices to teacher pension funds would lead to reduced benefits and more exposure of retirees to market volubility without a reduction in employer costs. The investment efficiency of traditional public sector pension plans, compared to the 401-K type retirement plans common in the private sector, is created by pooling risk and reducing sizable administrative expenses associated with individual retirement accounts. These investment efficiencies are not as available in the private sector. Unlike governments, even the largest private sector businesses can go out of business and individual retirement accounts are one way to protect the retirement of private sector employees. In addition to the loss in investment efficiency, the switch to an individual retirement account system actually increases taxpayer costs in the short-run and should be made when state revenues are running high.

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