The Funding Status of Teacher Pensions: An Econometric Approach

The financing of public employee pensions has become an issue of growing public concern. This paper examines the fundinq status of teacher pension plans for the fifty states and for selected localities for the decade, 1971-1980. A pension underfunding equation based upon actuarial principles is specified and estimated using a sample of pension plans for which actuarially sound measures of underfundings are available. The ecometrically-estimated pension equationis then used to "predict" underfundings for each state and local pension plan for each year for which full pension plan data are available. The results reveal that the real dollar value of plan underfundings has risen by over 50% in the average state from 1971-1980. Strategies for funding these growing pension deficits are required.