@EdWorkingPaper{ai20-272,
title = "Sins of the Past, Present, and Future: Alternative Pension Funding Policies",
author = "Robert M. Costrell, Josh McGee",
institution = "Annenberg Institute at Brown University",
number = "272",
year = "2020",
month = "August",
URL = "http://www.edworkingpapers.com/ai20-272",
abstract = {Our goal in this paper, presented at the 2020 Brookings Municipal Finance Conference, is to better understand teacher pension funding dynamics with a focus on sustainability and intergenerational equity.  The origin of this paper is our analysis of the funding policy recommended in a highly publicized paper first presented at the 2019 Brookings Municipal Finance Conference (Lenney, Lutz, and Sheiner, 2019a; 2019b).  That proposed policy aims to alleviate rising pension payments that crowd-out classroom expenditures and teacher salaries by abandoning the attempt to pay down pension debt.  While the problem of crowd-out is real, we show that, with uncertain investment returns, the recommended policy would carry significant risk of pension fund insolvency and a jump in contributions to the pay-go rate, which is much higher than current rates. We close by proposing a policy evaluation framework that better incorporates risk and the intertemporal tradeoffs between current contributions and likely future outcomes.  We illustrate throughout with data from the California Teachers Retirement System (CalSTRS).},
}