Depending on the state you live in, school districts themselves may not actually be paying for the costs of offering retirement benefits to their employees. In states like Florida or South Carolina, those districts pick up the full tab for enrolling teachers and school employees in either a pension plan or defined contribution plan. But in other states, like Connecticut, the legislature directly covers the costs of teacher retirement benefits. (And of course, there are lots of examples that mix the two approaches to paying for benefits.) Depending on how states structure teacher benefits, teacher pension financing impacts student equity in the long run.
It is generally reasonable to glaze over such a technical detail about how teacher benefits get funded. However, when states fully subsidize teacher retirement benefits, they run the risk of exacerbating inequities that might already exist among students. And the case of Connecticut specifically highlights just what happens when this risk is ignored.
The State of Connecticut’s teacher pension subsidy for schools allocates more dollars to higher performing, more affluent, and less diverse districts. The status quo funding approach is putting districts with the greatest need at a systemic disadvantage in terms of resource equity and how they compensate their teaching workforce.
More people need to be aware of this, which is the subject of a new report from Equable Institute and Education Reform Now Connecticut.
How the Subsidy Works
Connecticut effectively divides the costs of compensation between employers (school districts) and the state. Employers pay salaries; the state pays for all required employer pension contributions. By covering a part of the teacher compensation packages that districts, as employers, would otherwise have to pay themselves—Connecticut is providing a subsidy to districts. This atypical approach to funding pensions results in variable allocations of state resources among districts—based on the salaries the districts themselves can already afford to offer.
Since retirement benefits are accrued at the local level, individual districts have different shares of the overall pension debt owed by the state. Notably, Connecticut public school districts vary so greatly in size and in the pensionable salaries they offer that differences in overall pension obligations do not necessarily indicate unfairness or inequity. In fact, it makes sense that the largest districts accumulate more pension debt. Dollar for dollar, New Haven Public Schools is the district with the greatest share of the state’s pension debt, in the neighborhood of $649M in 2020. By comparison, Union Public Schools, which enrolls under 50 students, has the smallest share of the state’s pension debt at around $2.8M.
Measuring the Subsidy Per Student
But is there a difference on a per student basis? This analysis uses each district’s total pension debt divided by its number of students enrolled—establishing a “Per Pupil Pension Subsidy” metric—to tell a more precise story about how fairly the state allocates education resources when it covers local pension obligations. The Per Pupil Pension Subsidy for Union is $61,205, nearly double the Per Pupil Pension Subsidy of only $31,401 in New Haven.
This shows how teacher pension financing impacts student equity. This means that the state’s pension contributions are not equally distributed on behalf of public school districts. Those that pay higher teacher salaries, and that are able to retain teachers for longer periods of time, are providing more valuable compensation.
And part of this compensation is being paid for directly by the state government. That’s how the state’s approach to paying for teacher retirement benefits is exacerbating inequity.
Keeping the Problem Clearly in View
For those who are concerned with educational resource equity in Connecticut, a conversation about the funding of teacher retirement benefits is long overdue. Connecticut’s annual teacher pension contributions account for over a quarter of the state’s overall K-12 education budget. Given the enormity of the obligation, it is worth considering the extent to which these funds, borne entirely by the state, are allocated equitably.
To be clear, the problem here is not directly with the Connecticut State Teachers' Retirement System. It is true that a driving factor behind these subsidy dollars is the unfunded liability level for the teacher pension fund. The current pension funding shortfall was caused both by historic failings from the legislature's funding policies as well as underperforming investments managed by the retirement system itself. But even if there were no funding shortfall, the underlying issue here would be the same. Even if there were an entirely separate retirement plan, like a defined contribution plan, if the state funded it like the status quo, there would be a similar problem.
Connecticut municipalities pay no portion of teacher pension obligations—even though these benefits are based upon the teacher salaries that local districts individually set. An inequitable state subsidy of district pension obligations therefore has tangible implications for students’ educational experiences.
To read the full paper and see how teacher pension financing impacts student equity with tables showing how the Per Pupil Pension Subsidy breaks out across racial and socio-economic lines, visit http://ctpensionsubsidy.org/.