The Pandemic and the Teacher Pay Problem

There have been countless headlines about the American education system’s struggles to educate 50 million students under quarantine. But there’s another, troubling consequence of the COVID-19 pandemic for the nation’s students: the disruption of policymakers’ efforts to improve the financial plight of public-school teachers.

A raft of research leaves no doubt that quality teachers are the biggest contributor in schools to student success. As we learned from walkouts by tens of thousands of teachers in the past two years, educators are severely underpaid in much of the country.

Now, with states slashing education budgets because of the virus outbreak, teachers face even grimmer prospects. Teacher pay hikes have already been shelved in Florida, Georgia, and Tennessee. Hawaii’s governor is proposing to cut teachers’ salaries by 20 percent. And the nation’s 3.3-million teachers are at risk of COVID-19 irreparably damaging the states’ already troubled teacher pension systems.

Unless policymakers act right away, the COVID-19 crisis will relegate the teaching profession in many parts of the country to near-subsistence status for years to come. And with one in every 100 Americans working as a public-school teacher, that could have devastating consequences for the nation’s economic recovery.

It cost roughly $740 billion to educate America’s 50 million public school students last year, the National Center for Education Statistics has found, including some $260 billion for teacher salaries (the average teacher salary was $62,760 in 2018). States and school districts put another $60 billion in teacher pension plans, on top of teachers’ own contributions, according to Boston College’s Public Plans Database.

The problem is that only about 30 percent of state and district retirement contributions pay the predicted cost of supporting retired teachers. The other 70 percent—$42 billion dollars a year—is spent backfilling massive shortfalls in the funds needed to pay all future promised pension benefits.

According to the Equable Institute, a non-profit research organization, those deficits—known as unfunded liabilities—skyrocketed from about $250 million in 2007, before the Great Recession, to more than $650 billion in 2018, as state pension boards, governors, and state legislators failed to enact pension reforms and kicked those obligations down the road to fund other priorities and balance state budgets.

The impact on education budgets has been striking. The share of state public school spending on teacher pensions rose from 7.5 percent nationally in 2001 to 9.3 percent in 2009, the height of the recession, according to a recently released Equable study. By 2018, however, pension spending consumed 14.4 percent of state education spending—even as policymakers in many states cut future retirement benefits. That’s billions of additional dollars locked up in pension payments.

Teachers have paid a heavy price. Robert Costrell of the University of Arkansas has calculated that the nation’s school districts spent an average of $1,312 per student for teacher retirement benefits in 2018, up from $530 in 2004, an increase of some $39 billion or nearly $12,000 per teacher. If that money went into teacher salaries, the average U.S. teacher’s pay would increase by nearly 20 percent.

Disconcertingly, only about 20 percent of teachers stay in their jobs long enough to receive their full pension benefits. Roughly half of teachers will leave before they vest, the point at which they are entitled to their employers’ contribution to their retirement benefits. In 16 states, teachers don’t vest until they’ve spent a decade in the classroom.

Pension-less attrition hurts teachers of color disproportionately, since they tend to work in more challenging settings with higher teacher turnover rates. The problem is compounded by the fact that nearly 40 percent of public-school teachers are not enrolled in social security because their state or school district did not choose to participate in the federal system

The good news is there are steps states could take now to avoid the same mistakes they made after the Great Recession. These moves would leave teacher pension systems in better shape when the economy rebounds, and eventually could put more money in teachers’ pockets.

The first is to adopt more reasonable assumptions about future investment returns. States like New York and South Dakota have largely avoided shortfalls that way. South Dakota assumes a 6.5 percent return on pension investments, well below the national average of 7.2 percent. Predicted returns of between five and six percent would be even more prudent in today’s turbulent economy. The more realistic states are about investment returns, the less likely they are to miss their revenue targets and put pension systems deeper in debt.

States would also help themselves by recognizing that the current workforce is more mobile and that teachers are less likely to stay in education, much less start and finish their careers in a single state’s classrooms. South Dakota provides a high degree of pension portability, permitting teachers to take a large portion of their employers’ contributions with them if they move out of state, keeping teachers on a path to retirement security. Michigan addresses the portability problem by giving teachers the option of putting retirement money in a professionally managed, 401(k)-style personal retirement account.

Ultimately, it’s going to take a lot of cash to pay down the states’ $650 billion in teacher pension legacy liabilities, money that’s going to be hard to come by in the aftermath of the pandemic.

Still, states’ failure to enact reforms in the aftermath of the 2007-08 economic crisis more than doubled the unfunded liabilities in teacher pension systems, helping put the profession in the parlous position it’s in today. The states owe it to the nation’s teachers—and their students—to do better this time.

This piece was originally published in Washington Monthly.