- As teachers, school districts, and state taxpayers are shelling out more each year to try to salvage California’s teacher pension program, California Gov. Jerry Brown is asking the state’s supreme court to relax some of the pension guarantees that are placing a greater burden on school districts most of all, EdSource reports.
- In an effort to keep the teacher pension plan from insolvency, the state legislature increased payments from all parties involved over a period of nine years: employee contributions were 8% in 2013 and are now 10%; school district contributions were 8.25% in 2013 and will be more than 19% by 2021; and the state contribution was roughly 4.5% in 2013 and will be 10.8% in 2021. The state has also lengthened the retirement age for new workers.
- One of the biggest issues at stake is the “California rule," which is used in about a dozen states, which stipulates that teachers and other public employees are “forever entitled” to the pension benefits promised on their first day of work. This rule limits the state’s flexibility in trying to protect underfunded pension plans, Brown’s attorneys argue.
According to CalMatters, the average annual pension of a retired teacher in California is $55,000 and, while the state’s teacher pension fund sits at $222.8 billion, the state has $107 billion in unfunded liability for teacher pensions alone. “In years to come, schools may need to use more than half of all new tax revenue to cover growing pension obligations, leaving little extra for classrooms. The situation exists even after school districts, teachers, and the state agreed four years ago to pay more to reduce the unfunded liability,” the article states.
California is not the only state to face this issue. Almost every state in the nation has unfunded liabilities caused by market downturns and unrealistic promises made by past lawmakers. According to Teacherpensions.org, “Collectively, states face $1.4 trillion in unfunded pension liabilities, and $500 billion of that is due to teacher pension debt.”
As teacher salaries increase, the problem only worsens for states and school districts as their obligations are usually tied to a salary percentage. The increase in these payouts leaves less money for school districts and states to use for the business of education, providing enough support for students, and decreasing class size.
The issue also affects recruiting, as many states have had to lower retirement expectations for new teachers. In many states, the retirement age is later, the pension payout will be lower, and employees are expected to contribute more of their own salaries to the process. While states wrestle with possible solutions to this problem, school districts are left to grapple with the fallout effects on budgets. Incoming teachers also have to be prepared for more realistic pension plans in the future. While the issue may affect recruitment in some areas, the good news is that most states are having to adjust these expectations and many other industries are doing this as well.