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Unfunded Liabilities

Updated: December 13, 2019

Issue: TRS, like many other pension systems throughout the United States, carries an “unfunded liability,” which at the end of fiscal year 2019 was $78 billion. Because of this unfunded liability, TRS currently has 40 cents in the bank for every dollar owed to members.

Discussion: The TRS unfunded liability is a long-term concern — think decades — and should not be confused with the annual obligations of the System. It would be like confusing a family’s “mortgage” with the “mortgage payment.” TRS has carried an unfunded liability since 1939 and has never missed a pension payment to any member because of the unfunded liability.

If all TRS obligations for current retirees and active teachers were called due today, the System could not meet 60 percent of those outstanding pensions and benefits. But that can never happen because not all teachers will retire at the same time. By law, active teachers cannot collect retirement benefits, so TRS must pay out only what is owed to benefit recipients in that year. In fiscal year 2019, TRS paid out $6.7 billion in benefits and collected $8.1 billion in total revenue.

The unfunded liability is a concern for state officials because the higher the unfunded liability gets the more money the state must contribute each year to TRS and the other public pension funds. High contributions drain money away from other state services. For FY 2019, 84 percent of the state’s $4.5 billion contribution to TRS was dedicated to paying off a portion of the unfunded liability, and only 16 percent dedicated to the year’s pension obligation.