In “The Equity Problem in Teacher Pensions,” released in January, Edunomics Lab took a preliminary look at the scope of variation in how pension funds are applied across schools in order to shed light on meaningful patterns that have largely remained in the dark. Our initial analysis of patterns in Delaware and three districts in Wisconsin, California, and Pennsylvania suggests that the current pension wealth accrual structure results in an inequitable deployment of these key education resources.
The $223 million slated for the retirement system, which ended fiscal 2016 on June 30 with fewer assets than it had two years earlier, is enough to have given all teachers 4 percent or 5 percent pay raises, rather than the 2 percent Gov. Nathan Deal and lawmakers are offering. And it’s more than enough to return the state to the education funding levels lawmakers long ago promised public schools.
A new teacher’s pension is supposed to be a perk. The truth is that for the majority of the nation’s new teachers, what they can anticipate in retirement benefits will be worth less than what they contributed to the system while they were in the classroom, even if they stay for decades.
While the financial woes are a result of a confluence of circumstances, analysts say one culprit stands above the rest. “Pensions are one of the most untold stories of why this is happening,” says Chad Aldeman, an associate partner at Bellwether Education Partners, an education policy organization in Washington. “These are big dollar amounts at play that people haven’t conceptualized.” According to the Federal Reserve, employee pensions across state and local governments are underfunded to the tune of $1.7 trillion.
What policymakers and others have failed to ask is how well the current pension system is serving its workers, particularly teachers. While many assume that the current problems lie solely in the state’s failure to properly manage its finances, few consider the design of the current plan and the impact it has on teachers. This report concludes that by adopting an alternative retirement plan for teachers, the state could improve its financial situation and provide better benefits for teachers.
As of September 2015 pension costs were $1,085 per pupil. The reasons for the dramatic rise in pension costs for school employees vary from state to state, but the main cause is payments to amortize the enormous unfunded liabilities that have come to exist as states and districts have deferred payments on benefits they have promised to their teachers and other employees.
So overall expenditures are up, but teacher salaries are actually down slightly over the same period. Today, the average public school teacher earns $56,689 annually, a couple hundred dollars less than the average teacher salary 20 years ago (in constant dollars). Why is this happening? This puzzle can be explained by three trends eating into teachers’ take- home pay: rising healthcare costs, declining student/teacher ratios, and rising retirement costs.