How Pensions Affect School Districts’ Spending Budget

Some states spend up to 40% of their education budget on paying for teacher pensions, as schools try to find a balance.

By Jessica Marie Baumgartner | Published

Pediatricians Say Children With Head Lice Should Remain In School

Teacher pensions are one of the main perks of the profession. But just how much are these coasting school budgets? Moody’s Investors Service, a credit-rating firm noted that in many states nearly one-third of education funding goes to pay teacher pensions. 

This may explain why, although public schools are experiencing enrollment drops, a teacher shortage, low proficiency rates, and chronic absenteeism, states are still increasing budgets. While these pension programs may draw in educators looking to meet long-term goals, they are also extremely costly. In addition, they have become a drain on education budgets. 

The public school system is a taxpayer-funded organization. This means that pension programs are as well. As the economy experiences hardship, and the population does not increase enough to replace retired workers, this becomes an increasingly difficult scenario. 

Schools require masses of funding to perform building repairs and meet students’ needs as inflation continues to decimate the value of the American dollar. In addition, these institutions are having to increase teacher pay and offer massive bonuses to fill vacant teaching positions throughout the teacher shortage. Promising pensions also give educators the retirement security they need to feel appreciated, but current plans and past models are based on increased funds and so these figures are not sustainable in the current climate. 

In Kentucky, Michigan, and Pennsylvania more than 30% of the public education budget is spent fulfilling teacher pensions. What’s more, Indiana, Arkansas, and Illinois spend over 40% of their entire school budget on pension plans. Connecticut spends the most on teacher retirement spending nearly 50% of its education funding on teacher pensions alone.  

Districts experiencing common enrollment drops, chronic absenteeism, and lowered performance rates are being forced to cut their budgets. This does not often affect pension plans. That means that funding is taken from education programs in order to continue paying retired teachers while students suffer. 

Unfortunately, this situation doesn’t mean that all retired teachers are well-off either. Pension plan fees are not just based on direct payouts to educators. They include fees for record-keeping and all pension-related expenses. 

This presents a huge problem that has yet to be addressed as education funding continues to become a topic of discussion. When California’s economy tanked in 2020, the state did institute pension reductions and froze scheduled increases. The state racked up a $54 billion deficit and only received a $584 million payout when the state “bounced back.”

How each state manages teacher pensions varies. But the increasing costs of such retirement funds is causing districts to allocate large portions of education funding toward non-classroom resources. At the same time, these plans are considered essential to many who serve their communities and work in the field for decades as they grow into old age. 


Ensuring that taxpayer funded-schools properly educate students while caring for the workers who ensure its success is a balance that many states are struggling to find. Teacher pensions are important for obtaining long-term teachers and providing them with stable retirement options. Student successes must also be met, and are proving difficult as budgets direct large portions of education money away from their needs.