Staff Benefits Are Eating Up Bigger Shares of District Budgets, Report Finds
School districts are spending bigger chunks of their budgets on staff benefits, leaving less money to spend in the classroom, a new study finds.
The report, published by the nonprofit Bellwether Education Partners and its project TeacherPensions.org, analyzes the 10 most recent years of school district finance data from the U.S. Department of Education. It found that nationally, from 2005 to 2014, instructional spending increased by 2.6 percent, while spending on benefits for instructional staff members grew by 24 percent.
Since education budgets have been largely flat, this means that spending on benefits is eating up more of districts' money, and fewer dollars are making it into the classroom. In 2014, nearly 26 percent of per-pupil instructional spending went toward benefits rather than the classroom. That's a 4.43-percent increase from 2005.
Benefits are largely composed of health care and pension costs. Over the last decade, spending on teacher health-care benefits is up 30 percent, and spending on teacher retirement costs is up more than 50 percent, according to the report.
The report also found that for the most of the 20 largest school districts in the country, benefit spending is increasing as fast or faster than it is at the state level. That's because benefit costs are rising more quickly at the district level, and because districts have seen their budgets cut over the years. At the district level, benefit costs are eating up an increasing share of a diminished budget, the report concluded.
Despite the rising spending, teachers are "not getting super lucrative pension plans or platinum health care," said Max Marchitello, a senior policy analyst at Bellwether Education Partners and the author of the report. "Most of what benefits spending goes to is to pay down [states'] debt, the cost they already incurred in years prior."
In fact, many teachers don't end up collecting their full pension upon retirement. Typically, pension plans require teachers to teach between five and 10 years in order to qualify for retirement benefits—a benchmark that many teachers today never reach. And pension systems become more generous as teachers near the retirement point, so if someone moves to another state or leaves the profession before retirement age, he or she might be sacrificing significant pension wealth.
"A pension is a sweet deal if you're a 30-year-plus teacher who lives in one state [for your whole career]," Marchitello said. "If that's who you are, the pension system works for you. But most teachers don't fit that demographic."
Still, the majority of teachers are enrolled in these defined-benefit pension plans. Only 8 percent of public school teachers participate in defined-contribution plans, such as 401(k) accounts, which are based on each employee's individual investment decisions.
The Bellwether report found that in some states, like Colorado, Illinois, and Louisiana, benefit spending increased at more than 5 times the rate that their overall education budgets grew. Alaska spends 40 percent of its instructional expenditures on benefits, the most of any state. And several states have billions of dollars in pension debt—Illinois, for example, has nearly $74 billion in unfunded pension liabilities.
In fact, over the last decade, only two states cut benefits at a rate greater than cuts to their K-12 budgets—West Virginia and Wisconsin. From 2005 to 2014, West Virginia cut benefit spending by 6.5 percent while increasing its overall instructional spending by 2.5 percent. However, it's worth noting that the state's lack of investment in its state health care agency caused teachers' premiums to increase, which was a large factor in the nine-day statewide strike that took place earlier this year.
"If you're going to require teachers to pay [more in premiums], but you don't have any corresponding increase to their salaries, then they're being squeezed," Marchitello said. "They're getting less money in a lot of ways."
Instead, he said, states will need to consider significant pension reform. The report concluded that without any sort of pension buyout or reform, all states will likely need to increase their benefits spending.
"States need to wean themselves off these large public pension systems," Marchitello said, adding that some states like Michigan and Kansas have pivoted away from the traditional defined-benefit pension plans in recent years.
However, it can be a politically tricky move. Kentucky, which is $14.5 billion short of what it will need to cover retirement costs over the next 30 years, saw a wave of teacher protests this spring after legislators tried reducing cost-of-living increases for retired teachers in an attempt to tamp down the pension debt.
Ultimately, the final bill made made no significant changes to current teachers or retirees' benefit plans, but it places teachers who are hired in 2019 into what's known as a "cash-balance" plan. Those plans are hybrids between a traditional defined-benefit pension and a 401(k).
Hybrid plans need a good deal of political and public will to work, Marchitello acknowledged, but they would help states balance their current obligations to teachers who have paid into the retirement system without digging the hole even further.
"We're perpetuating a system that really doesn't work for anyone involved, except for a select few pension winners, but it comes at the expense of the bulk of the teacher workforce and the state budgets themselves," Marchitello said.
Chart via Bellwether