The trillion dollar problem: Pandemic puts state pension plans at even greater risk: Martin Lueken
Public pension plans in the United States face about $1 trillion in investment losses due to the COVID-19 recession, according to a recent report by Moody’s.
Before the COVID-19 recession hit, states already faced more than $1 trillion in unfunded liabilities. This situation does not bode well for states, school districts and certainly teachers. In the absence of a dramatic comeback in the markets for plans to recoup these losses, states and school districts across the country will need to find ways to make up for these losses. The effect of this collapse is that public K-12 systems will face unprecedented budgetary pressures, and nobody knows how long these challenges will persist.
The current economic downturn will have rippling effects on the health of pension funds for public school teachers and other public employees. In theory, pension funds should be positioned to take these recessionary blows. After all, the country just ended the longest period of economic expansion in its history, twice as long as the average duration of economic expansion post-World War II, and surpassing the dot-com expansion that ended in 2001 and subsequent expansion ended by the 2008 recession.
Unfortunately, most states are not well positioned to weather such a recession, even coming out of this long bull market.