Rising Teacher Retirement Costs Pressure School Districts to Cut, Defer Other Spending

Public school districts face unfunded pension obligations, straining their ability to fund educators’ salaries and K-12 programs, according to an issue brief from the Equable Institute. As a result, districts increasingly cut compensation, support services and their contributions to long-term savings.

Equable based its analysis on a survey conducted in partnership with the EdWeek Research Center in February 2024. The survey asked more than 1,000 school district leaders whether growth in retirement costs has placed pressure on them to cut or defer K-12 spending over the past five years.

“The problem has persisted … at its peak for the last few years,” says Anthony Randazzo, Equable’s executive director and one of the report’s authors. The “problem,” Randazzo says, refers to the “confluence of the perpetuated pension debt issue,” followed by a decrease in the funding that went to school districts during and after the COVID-19 pandemic.

Equable is a nonprofit organization working to find solutions to public sector retirement security.

Employer contribution requirements for teacher pension plans have tripled over the past 25 years. Yet while K-12 budgets have grown by 33% since 2001, retirement costs have grown by 220%, the survey found.

How states and districts share pension contributions shapes how districts are affected by rising costs, per the brief. In states where school districts pay pension costs directly, large districts—with an enrollment of at least 10,000 students—were nearly twice as likely as small districts—those with 2,500 or fewer students—to make cuts or defer other spending priorities.

Each cost-sharing model has trade-offs for states and districts to consider, the researchers found. When states pay 100% of pension costs, the payments act as subsidies, potentially allowing equity among districts, so long as state legislatures account for the subsidy in the state’s school funding formula. Similarly, where districts pay 100% of costs, districts can better understand the effects of their salary decisions on retirement costs.

But both models also have their downsides. Predominantly state-backed pension obligations risk benefiting wealthier districts when the obligations are excluded from funding formulas. District-backed plans can end up constituting a greater share of pension funding in lower-wealth districts that may struggle to raise revenue.

School districts surveyed in the report were most likely to cut teacher support, recruitment and compensation. In states that paid costs directly, 29% of cuts affected support and recruitment, and 21% went toward compensation. Where districts paid all or most pension costs, 21% and 23% of cuts targeted the respective categories. Cuts also affected utilities, building maintenance and security. Regardless of whether a state or a district paid the bulk of the costs, 15% of districts surveyed cut or deferred building maintenance, security and utility investments.

Suburban districts were more likely than their urban and rural counterparts to experience budget cuts forced by rising pension obligations, according to the study. However, urban districts were most likely to make cuts to both current and future costs.

When asked which states are most likely to have issues with pension debt going forward, Randazzo points to Connecticut as an example. The state has “decades of unfunded liability to their teacher pension plans, and as the pension plans have matured, decisions that were made in the 1980s are … becoming a problem today,” he says.

The state’s Teachers’ Retirement System is 62.3% funded, according to information released in December 2024 by Connecticut Governor Ned Lamont. The best-funded state teachers’ pension funds are nearly 100% funded, while some of the worst are funded at 50% or less, according to data in the Public Plans Database for 2023, the last year for which data is available.

Equable’s brief proposed several solutions to ameliorate hidden pension costs. To account for debt in school funding formulas, the organization recommended monitoring hidden cuts and mandating that districts share some of the cost.

“The last few years saw improved investment returns and extra state contributions, but that only slowed the growth in pension debt, not erased it,” the report stated.