Current methods of funding teachers' retirement systems, which base pensions on final salaries, are inequitable because they are not related to school districts' ability to pay and because they require some teachers to subsidize others. A five-state survey shows it is common for pensions to be funded by school districts and teachers, sometimes with help from the state. Data from one of the states, New York, show, first, that districts have no control over many factors affecting their salary levels, including their labor market area, percentage of special students, and size. Second, they indicate that variation among districts in their rates of salary change over time is a more important source of inequity than differences in salary schedules. Two conclusions can be drawn: (1) that pension funding based on districts' salary costs is unfair for districts with low property wealth, because districts cannot control these costs; and (2) that teachers from districts with low rates of salary change are subsidizing teachers from districts with high rates of change. One recommendation for reducing these inequities is to tie retirees' pension payments to years of experience and age and not to final salary levels. (RW)