Funding
Collectively, the gap between what states have saved for teacher pensions and what they have promised to pay retirees totals almost $500 billion. Some states have done a good job of funding their pension plans while others have redirected those resources elsewhere. Teacher pensions are one important part of the more than $1 trillion shortfall states face today for public sector pensions and benefits such as health care. And with Americans living longer into retirement, the challenge of paying for teacher retirements will only increase.
States and districts are likely to feel rising pressure from unfunded pension promises. Instead of hiring more teachers or increasing teacher salaries, school districts are devoting an increasing share of their resources to employee benefits. To cover these costs in the future, states and cities will need to make trade-offs between pension costs and spending on other priorities. Within the education field, some cities faced with rising pension costs are already laying off teachers and freezing salaries.
States are addressing their financial problems by making formula tweaks that shore up the financial aspects of plans by making the benefits less generous, especially for new teachers. Plans may look like they’re in good shape financially, yet in actuality they will be worse plans for teachers.