Education Next: Public School Teacher Retirement Costs Significantly Higher than in Private Sector

Gap Has Doubled over Past Four Years, New Study Shows
STANFORD, Calif.--(Business Wire)--
Analysis of new data from the U.S. Department of Labor shows that employer
contributions to retirement benefits for public school teachers in 2008 were
substantially higher than for private professionals, a group that includes
lawyers, physicians, financial managers, engineers, computer programmers, and
others. According to new research by economists Robert Costrell of the
University of Arkansas and Michael Podgursky from the University of
Missouri-Columbia, employer contributions to teacher pensions grew from under 12
percent of earnings in 2004 to well over 14 percent in 2008, while pension costs
for private sector professionals remained essentially unchanged.

Costrell`s and Podgursky`s research, published in the new issue of Education
Next (Spring 2009), reveals that employer contributions to public school
teachers` retirement benefits, as a percent of earnings, were more than 4
percentage points higher than in the private sector, up from less than 2 points
higher in 2004 -- a gap that has more than doubled in the past four years.

Costrell and Podgursky found that when compared with the private sector, total
employer contributions are higher for teachers whether or not they are also
covered by Social Security. In states with employer contribution to social
security benefits for teachers, the total average contribution to pensions is
over 15 percent of earnings; in states without, the average is just over 11
percent of earnings. In both cases, teachers benefit from greater average
employer contributions than those received by private sector employees, which
run just over 10 percent of earnings.

The authors note that their estimate of the gap in retirement benefits favoring
teachers is underestimated since the U.S. Department of Labor survey data on
which they rely does not include retiree health insurance, a benefit that has
all but disappeared in the private sector.

According to the most recent data from the U.S. Department of Education, the
nation`s public schools spent $59 billion in benefits for instructional
personnel, adding about 32 percent to salaries. The vast majority of teacher
pension plans are not fully funded. This means that contributions include both
the "normal cost" of pension liabilities accruing to current employees and the
legacy costs of amortizing unfunded liabilities accrued previously. The sharp
downturn in the economy has contributed to a precipitous fall in the market
value of pension funds. Barring a major market recovery, teacher pension funds
across the country will have significantly larger unfunded liabilities, and the
gap in pension benefit costs is likely to widen further. This will be a further
burden for K-12 school districts in coming years.

Read "Teacher Retirement Benefits" now available online at
www.EducationNext.org.

Robert M. Costrell is professor of education reform and economics at the
University of Arkansas. Michael Podgursky is professor of economics at the
University of Missouri-Columbia.

Education Next is a scholarly journal published by the Hoover Institution that
is committed to looking at hard facts about school reform. Other sponsoring
institutions are the Harvard Program on Education Policy and Governance and the
Thomas B. Fordham Foundation.

University of Arkansas
Robert M. Costrell, 479-575-5332
or
University of Missouri-Columbia
Michael Podgursky, 573-882-7741
or
Hoover Institution, Stanford University
Caleb Offley, 585-319-4541
www.hoover.org

Copyright Business Wire 2009