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During the 2009–10 school year U.S. public schools spent $214 billion on salaries and $74 billion on benefits, including pensions, for instructional personnel. Together, salaries and benefits accounted for nine of every ten instructional dollars spent. Aiming to make more productive use of these funds, and stimulated by federal Race to the Top and Teacher Incentive Fund grants, states and districts have launched experiments in performance pay and other compensation reforms designed to improve teacher performance, retain the best teachers, and put them where they are most needed. 

One thing they have not done: talked seriously, or innovatively, about pensions. This is a lost opportunity, as retirement benefits are now emerging as a central concern and potential lever for improvement. State education agencies (SEAs) and their chiefs are often disengaged from important policy debates about teacher pensions. The typical view—one that is reflected in organizational charts—is that teacher quality sits in one place, school finance sits in another, and the pension fund sits in a different world altogether. 

Many state school chiefs believe there isn’t much role for an SEA in pension reform, in part because pension policies appear to be the domain of state pension boards or because legislatures tend to be the ones to drive change. But that sells short the SEA’s potential influence. In practice, state education leaders should take an active interest in pensions, not only because of the education system’s role in creating the liabilities, but also because of how pension changes might affect teacher quality and school staffing. As pension liabilities continue to rise, state chiefs need to help educate district leaders on how their decisions affect pensions in ways they may not consider. And, of course, given that pensions are a key part of teacher benefits, state chiefs should understand how incentives built into teacher retirement plans can affect retirement behavior and school staffing.