Arkansas Professor: Employer Contributions for Teacher Pensions Higher Than in Private Sector

FAYETTEVILLE, Ark. – Analysis of new data from the U.S. Department of Labor shows that employer contributions to retirement benefits for public school teachers in 2008 were substantially higher than for private professionals, a group that includes lawyers, physicians, financial managers, engineers, computer programmers and others.

According to new research by economists Robert Costrell of the University of Arkansas and Michael Podgursky of the University of Missouri-Columbia, employer contributions to teacher pensions grew from under 12 percent of earnings in 2004 to well over 14 percent in 2008, while pension contributions for private sector professionals remained essentially unchanged.

Costrell’s and Podgursky’s research, published in the spring 2009 issue of Education Next, reveals that employer contributions to public school teachers’ retirement benefits, as a percent of earnings, were more than 4 percentage points higher than in the private sector, up from less than 2 points higher in 2004 – a gap that has more than doubled in the past four years.

Costrell and Podgursky found that, when compared with the private sector, total employer contributions are higher for teachers whether or not they are also covered by Social Security. In states with employer contributions to Social Security benefits for teachers, the total average contribution to pensions is more than 15 percent of earnings; in states without, the average is just over 11 percent of earnings. In both cases, teachers benefit from greater average employer contributions than those received by private sector employees, which run just over 10 percent of earnings.

According to the most recent data from the U.S. Department of Education, the nation’s public schools spent $59 billion in benefits for instructional personnel, adding about 32 percent to salaries. The vast majority of teacher pension plans are not fully funded. This means that contributions include both the “normal cost” of pension liabilities accruing to current employees and the legacy costs of amortizing unfunded liabilities accrued previously. The sharp downturn in the economy has contributed to a precipitous fall in the market value of pension funds. Barring a major market recovery, teacher pension funds across the country will have significantly larger unfunded liabilities, and the gap in pension benefit costs is likely to widen further. This will be a further burden for K-12 school districts in coming years, the authors say.

The report, “Teacher Retirement Benefits,” can be read online at www.EducationNext.org.

Education Next is a scholarly journal published by the Hoover Institution that is committed to looking at hard facts about school reform. Other sponsoring institutions are the Harvard Program on Education Policy and Governance and the Thomas B. Fordham Foundation.