Teacher Pension Costs’ Impact on School Spending

Collectively, state pension plans face a $1.4 trillion shortfall nationally, with teacher pensions alone accounting for $500 billion in unfunded liabilities. Today, for every $1 contributed to state pension plans, an average of $.70 goes toward paying down the pension debt (rather than benefits for current teachers).

Large pension debts, in turn, place fiscal pressure on district spending. In the face of growing pension liabilities, Michigan districts on average are now required to set aside 16 to 18 percent of per-pupil spending toward retirement contributions. In California, the state teacher pensions plan has an unfunded liability of $74 billion. In order to pay down the current debt, the state has increased the contribution rates that are required of school districts and that are deducted from individual teacher paychecks. Within the next decade, nearly 40 percent of California teachers’ total compensation will go toward paying down the pension plan’s unfunded liabilities. Moreover, teacher pension costs are rising across the country and crowding out other school spending.^{1 2 3 4}