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Unfunded Liabilities

Updated: November 15, 2020

Issue: TRS, like many other pension systems throughout the United States, carries an “unfunded liability,” which at the end of fiscal year 2020 was $80.7 billion. Because of this unfunded liability, TRS currently has 40 cents in the bank for every dollar owed to all 427,000 members for the rest of their lives.

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 2020, TRS paid out $7.1 billion in benefits. Over the last five years, benefits paid totaled $32 billion, but revenue collected totaled $38.8 billion.

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 2020, approximately 84 percent of the state’s $4.8 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.