A recent article from the Connecticut Post looked at the budget priorities for outgoing Governor Dannel Malloy, including teacher pensions. Connecticut's teacher pension system is in particularly bad shape, and the article notes that, "according to one study, [Connecticut's] annual contribution could more than quintuple, topping $6.2 billion by 2032."
While almost every state has funding problems, Connecticut is unique in that the state takes the responsbility for paying the full cost of teacher pensions. That is, unlike other states, where the costs of teacher retirement plans are born by the school districts that employ the teachers, Connecticut pays for teacher pensions out of its state budget. And that has consequences:
The current system of funding teacher pensions also is regressive.
To make his point, Malloy contrasted one of the state’s most affluent communities, Greenwich, with one of its poorest, New Britain. Both have similar populations and school enrollment totals, but Connecticut spent $24 million more last year to cover pension costs for retired Greenwich teachers than for those from New Britain.
In simple terms, Greenwich can afford to pay much higher salaries than New Britain can, yet it gets more help from the state on a per capita basis to provide pensions for its retired teachers.
There are a handful of states, like Illinois, Kentucky, and New Jersey, that also pay for teacher pension costs out of the state's general fund. These states tend to be in worse financial shape, since state legislators face annual decisions over whether they should contribute to the pension fund or use the money elsewhere. And inevitably, politicians find other places to spend money, and they regularly short the pension fund. That has implications for the financial health of the plan, but Connecticut is a good reminder that paying for pension plans this way also leads to large and inequitable subsidies. The biggest winners from this arrangement are communities with a stable teaching workforce, like Greenwich, that can afford to pay high salaries. A "blue" state like Connecticut is operating a pension system that is neither fair nor progressive.
Connecticut provides a stark example of funding inequities buried in statewide pension plans, but every state has benefit inequities even when districts are responsible for paying the tab. That's because most states are operating statewide teacher pension plans, and they set contribution rates as a function of all teachers in the state. In that arrangement, school districts with high teacher turnover and low salaries will be forced to subsidize the pensions earned in districts with higher teacher stability and higher salaries.
The politics of this are especially confusing, because the loudest defenders of pension plans are Democrats who support efforts to increase equity in other areas of policy. But on pensions, Democrats are often the ones fighting to preserve systems that deepen financial inequities.