Teacher Pensions Blog

Teacher salaries differ – sometimes significantly – from school district to school district. And as I’ve written previously, differences in salaries are exacerbated by state pension funds. Districts serving high concentrations of low-income students often pay teachers lower salaries than other districts and also end up spending far less on teacher retirement as well.

In an analysis of Illinois teacher pay data, I found that this problem is particularly pronounced in rural and urban school districts. However, the reasons for the pay disparities differ between rural and urban districts. Rural districts have lower average salaries and thus less valuable pensions. Urban districts offer salaries comparable with the suburbs, but have a greater share of educators who do not qualify for benefits in the system, and a greater share of educators with fewer years of experience overall, which also results in lower pension benefits.

As shown in the graph below, rural districts in Illinois spend the least per pupil on salaries, while urban districts spend far and away the least per pupil on pensions. As a result, the aggregate disparity with suburban districts actually increases for both rural and urban districts. Once you factor in pensions, the rural-suburban gap increases by $173 per pupil, or 24 percent. Urban districts spend only $61 less per pupil in salaries than suburban districts. However, after accounting for pension spending, that gap increases to $969 per student.

Rural and suburban districts earn roughly the same percentage of salary in pensions. Nevertheless, since rural districts spend far less per student in salaries, the spending gap grows after accounting for pension spending. So the problem for rural districts is simply that they do not, or cannot afford to, pay teacher salaries comparable to what suburban districts do. 

The problem is different in Illinois’ urban districts. On average cities pay about the same as suburban districts. That said, their pension spending per pupil is significantly lower than suburban districts. This is principally due to two things. First, Chicago operates its own pension fund, which is in an even worse financial situation than the state pension fund. In the final year of this analysis, the Chicago Teacher Pension Fund contributed only 6.24 percent of salary to the fund compared with 24.06 percent across the rest of the state. The experience of Chicago teachers greatly contributed to the lower pension spending. The good news is that this problem is somewhat ameliorated by a recent law requiring the state to contribute more to help cover Chicago’s teacher pension costs.

The second reason is urban districts employ a higher concentration of younger teachers. Indeed, 5 percent more teachers in suburban districts reach the 5 years of service required to vest into the system and quality for a pension. And for those educators hired after 2011, the vesting period is 10 years. Even fewer teachers will reach that mark. As shown in the graph below, urban districts have a higher concentration of inexperienced teachers. Indeed, suburban districts employ a greater share of mid-career and long-term educators. Since pension spending is determined by formula and is based on salary and years of experience, a disparity in either variable will produce a disparity in pensions.

The structure of state teacher retirement systems produces the unintended consequence of exacerbating existing inequities between school districts. And while teacher pension spending is a particular kind of school spending, it nevertheless is yet another disadvantage facing districts that already have fewer resources.

It is understandable that districts with a greater capacity to offer higher salaries will do so. It would help close funding inequities if states provided greater financial support to high-poverty districts. Yet, unless that results in salary equity, the pension system will contribute to spending disparities. There are no easy solutions to this problem, but states should look for ways to provide teacher retirement benefits that avoid compounding existing inequities.