Teachers and other certified personnel (e.g., school principals) in California public schools are covered by the California State Teachers’ Retirement System (CalSTRS), which is a defined-benefit pension plan. In a defined-benefit plan, retirement payments are determined by a formula rather than by the value of accumulated contributions and investment returns, as in a defined-contribution plan (such as a private-sector 401(k)). The formula can be thought of as a promise to pay the specified benefit level.
Ideally teachers, school districts, and the state would contribute enough over teachers’ careers to fully fund the benefits promised by the formula. However, like in many states, this is not how things have worked out in practice in California—for many years, CalSTRS collected too little in contributions. As a result, it has accumulated substantial pension debt. As of 2024, the debt in CalSTRS was approximately $89 billion. To put this number in context, the entire California TK-12 education budget during fiscal year 2023-24 was approximately $129 billion.
The pension debt in CalSTRS has been a pressing issue for quite some time. The most recent legislative response occurred in 2014, when the California Legislature enacted Assembly Bill 1469 (AB 1469). AB 1469 established new contribution rates intended to amortize the existing debt at the time over roughly 30 years. The law increased contribution rates for all three funding partners—teachers, school districts, and the state—with the largest increase falling on school districts. The increases were phased in over a seven-year period from 2014-15 to 2020-21 (hereafter, school years in this report are denoted by the spring year – e.g., 2015 for 2014-15).
By the 2025–26 school year, the total contribution rate to CalSTRS had risen to 37.7 percent of covered payroll, up from 18.3 percent when AB 1469 was enacted. In other words, for every dollar earned by a CalSTRS-covered teacher, nearly 38 cents is contributed to the pension plan. Of this total, the state contributes 8.3 percent of payroll, school districts contribute 19.1 percent, and educators contribute just over 10 percent.
Importantly, the more than doubling of the total contribution rate between 2014 and 2026 has not been accompanied by an improvement in teachers’ retirement benefits. The higher contributions are used entirely to pay down pension debt. Accordingly, the 38-percent contribution rate greatly exceeds the actuarially calculated cost of providing pension benefits for current teachers, which as of 2026 is approximately 20 percent of teacher salaries. Pension actuaries refer to this amount as the “normal cost.” The gap between the total contribution and normal cost represents resources devoted to paying down debt and can be viewed as a tax on the current education system.
The contribution rates set by AB 1469 are projected forward through 2046, the target year for fully amortizing the debt addressed by the legislation. Although the rates are anchored in statute, they can fluctuate based on CalSTRS’ evolving financial condition. Among the three contributors, the state’s rate is projected to be the most volatile.
When a previous pension report was released in 2018 as part of Getting Down to Facts II (Koedel and Gassmann, 2018), there was considerable angst about the debt-fueled rise in CalSTRS contribution rates ushered in by AB 1469. Today, however, pension costs appear to be less of a concern for educators and policymakers. In fact, pensions did not come up at all during a pre-project listening tour conducted by members of the Getting Down to Facts III team.
Our research suggests two explanations for the lack of concern. First, stakeholders appear to have a limited understanding of pension costs. In a survey of 82 school principals conducted as part of Getting Down to Facts III, 71 percent at least somewhat disagreed with the statement that CalSTRS cost information is common knowledge among school principals. And when asked if it is common knowledge that almost half of pension contributions are used to pay down debt without contributing to current workers’ benefits, 93 percent at least somewhat disagreed.
Second, while pension costs have risen sharply, total TK-12 education revenue has grown even more. Annual CalSTRS contributions more than tripled between 2014 and 2024, increasing from $4.8 to $15.9 billion. Although substantial, this increase is smaller than the growth in the total TK-12 budget over this same time period, which rose from $69 billion in 2014 to $129 billion in 2024.
While recent revenue growth has helped school districts absorb rising pension costs in the short run, the large pension obligations remain a significant risk. If California faces pressure to reduce education spending in the future, CalSTRS costs will be difficult to accommodate. Absent changes to the law, districts cannot reduce their pension payments, meaning budget cuts would need to come from elsewhere. Having such a large and inflexible item in district budgets is a long-term risk to the delivery of public education in California.
Because CalSTRS’ pension debt is so large, our report focuses primarily on explaining the debt issue, and the related issue of CalSTRS contribution rates, now and in the future. We also address more fundamental policy questions about CalSTRS, including: (1) What workforce incentives does the system create? and (2) How much do teachers value their CalSTRS coverage? These questions naturally lead to other questions, like: (3) What policy alternatives to CalSTRS exist? and (4) How have other states reformed teacher retirement systems when confronted with similar fiscal challenges? Finally, we briefly discuss two related issues: the retirement system covering non-certificated school staff—the California Public Employees’ Retirement System (CalPERS)—and retiree health insurance.
