Feeling the Squeeze: Pension Costs Are Crowding Out Education Spending

While taxpayer contributions for government-worker retirement plans have nearly tripled since 2001, the plans are underfunded by at least $1.7 trillion for benefits already promised—and underfunded costs are continuing to rise. The pressure on state and local budgets translates into fewer resources available for other public services.

Education is the largest and potentially the most important public service to suffer. Almost every state increased retirement benefits for teachers in the booming 1990s, but the additional promises were not accompanied by responsible funding plans. By 2003, the funding for teacher pension plans overall was short by $235 billion; and by 2009, pension debt had more than doubled, to $584 billion. The strong bull market since the Great Recession has barely put a dent in the shortfall, which still totals approximately $500 billion.

Taxpayer contributions to teachers’ retirement plans are expected to grow substantially over the next decade. But the underfunding shortfall is so large that aggregate pension debt will also continue to grow.

To be sure, there is no immediate national “crisis,” insofar as most teacher pension plans are not on the brink of failure. Nevertheless, retirement costs per pupil are already approaching 10% of all education expenditures. Without meaningful reform, these costs, as well as the aggregate pension debt owed to teachers’ plans, will continue to rise and continue to crowd out education spending on the state and local levels.

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