The Center for American Progress (CAP) recently released a report on teacher salaries. The report looks at the average base salary for teachers with 10 or more years of experience in all fifty states, comparing salary growth over time. The report finds that teacher salary growth is minimal. But as the National Review pointed out, this does not include the relatively high cost of pensions.
In the public sector, lower wages are supposed to be offset by more substantial retirement benefits. Public sector workers generally have more generous retirement packages than similar workers in the private sector. A public sector worker who stays an entire career will have more retirement wealth than their counterpart who stays an entire career in the private sector.
Retirement benefits are expensive, and these benefits are eating away at salary growth. Nationally, pensions eat up 16.3 percent of public employee compensation in states with Social Security, and 22.7 percent in states without Social Security. CAP featured a North Carolina teacher named Richie Brown. Mr. Brown and his district employer contribute over 20 percent of his paycheck toward the state retirement system. In California, the state teacher pensions plan has an unfunded liability of $74 billion. In order to pay down the current debt, the state increased pension contribution rates which are deducted from a teacher’s paycheck. Within the next decade, nearly 40 percent of California teachers’ total compensation will go toward paying down the pension plan’s unfunded liabilities. A report like CAP’s that looks only at teacher salaries would not see things like this, but rising pension costs are a significant factor keeping salaries flat.
Most importantly, while retirement benefits are meant to balance out lower wages, only a small percentage of teachers will actually experience the generosity of a full-career pension. Instead, the majority lose out and do not even qualify for minimal retirement benefits. All teachers pay the cost of higher pension contributions, but only a small fraction reaps the benefits. State policymakers need to consider whether loading public sector compensation at the backend is worthwhile, or whether more funds should be paid upfront through salaries.