Charter schools & teacher pensions

Guest Blogger / June 22, 2011

We asked a few experts to share their thoughts on our newly published paper, "Charting a New Course to Retirement: How Charter Schools Handle Teacher Pensions"?an online forum of sorts. Here is a guest post by Frederick M. Hess of the American Enterprise Institute.

U. Missouri's invaluable Mike Podgursky and Fordham's Amanda Olberg have just issued a study of the kind that we'd have been swimming in years ago, if ed reformers were serious about cost structures or charter schools as an opportunity to rethink the industrial school model. In studying the simple and immensely practical question of how charter schools handle teacher retirement when state law allows them to opt out of the state's pension system, Podgursky and Olberg examine just how much rethinking charters are doing when it comes to the familiar, expensive, and binding routines of schooling?and what lessons that holds for schools more broadly.

The inattention to this question is really pretty astounding. As Podgursky and Olberg remind us, pension costs accounted for 15 percent of teacher salaries in 2010, and pensions probably amounted to more than 10 percent of all school-district spending last year. Big savings there could alleviate the need for so many of the difficult decisions with which supes, school boards, and school leaders are wrestling.

The authors examined six charter-heavy states?including giant states like California, Florida, and New York, and charter hotbeds Arizona, Michigan, and Louisiana. In California and Louisiana, where schools participating in the pension system are free from participating in Social Security, the participation rates were 91 percent and 71 percent, respectively.? In other words, nearly all charter schools chose to participate in the state pension system.? In the other four states, where schools could opt out of the pension plan with no repercussions, between 23 percent and 41 percent still opted to join the pension system.

The authors find that charters which opt out of the state pension system most often offer teachers defined-contribution plans (e.g. a 401(k) or 403(b)), with employer matches that look a lot like those offered to university employees or private-sector professionals.? Seventy-seven percent of schools that opted out provided a retirement plan with a match, 9 percent offered a plan but with no employer match, and 14 percent provided no alternative retirement plan.

The bottom line here is mixed, and intriguing.? First, it's clear that, as always, state statute and regulation play a huge role in determining what charters can and will do. Second, when given the opportunity to opt out of the state pension system without incurring new costs, a majority of charter schools take advantage of the opportunity?though a sizable number decline to do so. Third, charter operators have generally chosen to offer relatively attractive defined-contribution plans, though these appear less costly and more flexible (for both educator and school) than the established state system.

Finally, though, this terrific study raises a lot more questions than it answers. How much can schools save by opting for alternative benefit plans?? Why are so many charters opting to stay with the state system? How do teachers feel about these alternatives? How do these choices impact recruitment, retention, or talent management? What makes school leaders more or less likely to embrace cost-effective alternatives? And, finally, given that Minnesota enacted the first charter law twenty years ago, why has it taken this long for scholars to start to dig into the big questions about how and why charters are (or aren't) seizing opportunities to rethink industrial era cost structures and staffing routines?

?Frederick M. Hess is resident scholar and director of education studies at the American Enterprise Institute. He writes an Education Week blog entitled Rick Hess Straight Up.

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