The Pension Debt Challenge for Equity in Education
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In California, spending on teacher retirement costs have grown at nearly 6 times the rate of K-12 spending since 2014.
Rising teacher pension debt costs driven by underfunding and poor investment performance has resulted in disproportionate impacts for low-income and marginalized students. In the video above, Maria Escheveste, Xilonin Cruz-Gonzalez, and Pete Constant explain how California is falling short on its promises of equity in education.
Scroll to learn more about the challenges facing California and hear from voices on the ground.
1 / Hidden Cuts to K-12 Education Budgets that Disproportionately Harm Low-Income Communities
Pension costs have grown 176% between 2001 and 2020, as a share of combined state and local K–12 spending. This is an effective cut to education budgets, leaving fewer resources to improve teacher pay, fund enrichment programs, and hire more mental health counselors. While wealthy districts can raise additional funding through property taxes to make up the difference, low-income districts cannot.
2 / Pension Subsidies for Wealthy Districts
The state makes pension contributions “on behalf” of each district, which means that wealthy districts who have the resources to pay teachers more and retain them longer receive significantly larger subsidies from the state.
For example, St. Helena USD, with a median household income of $122,348 and a poverty rate of 6.7%, receives a pension subsidy of $1,405 per student. In Calveras USD, where the median household income is $70,119 and a poverty rate is 13.5%, the state provides a subsidy of $369 per student.
3 / Growing Costs for Teachers
Teachers are paying more for the same retirement benefits. In 2012, teachers paid just 6% of their salary to fund their pension plan. As of 2023, they pay 10.21%. That means they also have less take home pay due to rising costs.
Hear From Voices on the Ground in California
UNDERSTANDING HOW WE GOT HERE
Maria Echaveste explains how a law called Proposition 13 initiated the challenges in California's Education System.
HOW TEACHER PENSION DEBT IMPACTS SCHOOLS
Because California has shifted more and more of pension debt costs on to school districts and have capped property taxes, low-income districts are disproportionately affected.
THE CHALLENGES OF CALIFORNIA'S PENSION DEBT FINANCING
Xilonin Cruz-Gonzalez explains how districts bear the burden of state decisions around pension debt and education funding.
HOW TEACHERS FEEL THE IMPACT OF GROWING PENSION DEBT
Teachers are harmed by growing pension debt costs and a lack of education about their retirements benefits.
1 / Adjust Investment Assumptions
Investment assumptions for CalSTRS and CalPERS should be reduced to create a more realistic baseline for measuring the contribution rates necessary to get the pension funds back to full funding.
2 / Require that the State Pay the Full Pension Bill Every Year
The legislature should pass legislation requiring that the state pay the full actuarially determined contribution rate for CalSTRS every year, instead of its statutory pricing. There should be no maximum total contribution rate determined by the CalSTRS board.
3 / Improve Transparency
The legislature should increase transparency by officially showing the portion of state and local K–12 resources (excluding itemized federal dollars) that are spent on retirement and other benefit costs. In addition, the legislature could require additional reporting that shows what portion of any additional increases in K–12 funding are actually required to cover growing retirement costs. The legislature might also use general funds or more one-time contributions that are designed to offset local district contributions that are needed to cover unfunded liability amortization payments.
4 / Review the School Funding Formula and Study the Subsidization of Wealthy Districts
The state should be reviewing how its process of subsidizing districts is exacerbating inequities. Currently, a flat pension contribution rate is applied across all districts in the state and the status quo state pension system invests most heavily in affluent communities. The state could solve this by adopting an adjustment to the school funding formula that requires higher-income districts that pay larger salaries to contribute more to CalSTRS. Or the state could directly assume a greater share of contribution rate requirements in in lower wealth districts.
5 / Improve Benefits for All Educators
The benefits provided for teachers and staff through CalSTRS and CalPERS also should be improved — the one-size-fits-all benefit design currently offered is not optimal for all educators and public school employees, nor do the actual benefits themselves meet reasonable standards of adequacy.
Has Your School District Been Impacted by Growing Pension Debt Costs?
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