Charter school teachers would be hit hard by new Treasury Department ruling on pensions
When Hurricane Katrina hit New Orleans in 2005, hundreds of public schools were put out of commission and their staff placed on leave. Many charters schools expanded to absorb the displaced students, and these charter schools hired teachers from traditional schools to meet the enrollment demand. A glitch, fixed by state legislation, was to allow the displaced teachers to remain in the state teacher pension plan since some of the charter schools did not participate in the state plan. In 2010 this temporary law expired. Many of these transplanted teachers remain employed in charter schools and wished to continue to participate in the state teacher plan. Legislation was passed to allow these transplanted teachers to remain permanently in the state retirement plan, if—and this is a very big if—the Treasury Department approved.
Are charter schools sufficiently “governmental” that they can participate in state and local pension plans?
The Treasury Department held off ruling on the Louisiana case while it worked on regulations that would provide new guidance on what it meant for a plan to be a "governmental plan." In November, the Treasury Department issued proposed regulations on the subject, and the news is not good for charter school teachers in Louisiana, or anywhere, since these new rules would affect charter schools in all states.
The legal issues are complex, and in a forthcoming study, two of us (Buck and Thukral) will attempt to sort them out. However, the nub of the matter centers on whether charter school teachers are considered government employees. In particular, are charter schools sufficiently “governmental” that they can participate in state and local pension plans?
Huge stakes are attached to the answer. Private sector pension plans, where they still exist, are regulated by a highly prescriptive federal law –the Employee Retirement Income Security Act (ERISA). Governmental plans are not. This means that the governmental plans can do many things (e.g., be very underfunded) that private plans cannot. Administrators of governmental plans absolutely do not want to lose their governmental plan status.
Unfortunately, the proposed Treasury Department regulations, if adopted as currently written, would make it very difficult for state and local teacher plans to admit charter schools and retain their governmental plan status. Indeed, if these regulations are implemented as written, the prudent course of action for any state or local plan administrator, faced with possibility of losing governmental status, would be to throw charter schools out of the plan.
Such a move would be massively disruptive. Charter school teachers in every state with charter schools would be impacted.
Such a move would be massively disruptive. Charter school teachers in every state with charter schools would be impacted. The majority of state charter school statutes (only 41 states and the District of Columbia have charter school statutes) require charter school teachers to enroll in their state pension plans; under the newly proposed regulations, none could remain. In states which permit, but do not require, charter schools to enroll in state retirement plans, many have chosen to do so. These teachers, too, would be forced out.
Experienced charter teachers in state retirement plans would suffer massive losses in pension wealth if forced to leave their state plans mid-career. As a result, they would leave charter schools in droves. Those who are unable to find jobs in traditional schools or who choose to remain in their charter schools would suffer massive losses in pension wealth. Mobility of experienced teachers from traditional to charter schools would dry up. Finally, creation of “conversion charters”—schools that flip from traditional to charter status, often as way to restructure low performing schools—would be nearly impossible, since experienced teachers, including the high performing ones, would have powerful incentives to leave the school or oppose the conversion.
We believe that charter schools should have the option of participating in state pension plans. We encourage charter schools and their allies to let the Treasury Department know that the proposed regulations would have a dramatic and detrimental effect on the ability of charter schools to accomplish their education goals, and would unfairly punish teachers who have participated in state retirement plans pursuant to state law.
Here is a link where you can read the proposed regulations and comment. The Treasury Department is only accepting comments until Feb. 6.
Michael Podgursky is an economics professor at the University of Missouri-Columbia. Stuart Buck is a distinguished doctoral fellow in the department of education reform at the University of Arkansas. Renita Thukral is the senior director of legal affairs at the National Alliance for Public Charter Schools.
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About the Editor
Michael J. Petrilli
Executive Vice President
Mike Petrilli is one of the nation's foremost education analysts. As executive vice president of the Thomas B. Fordham Institute, he oversees the organization's research projects and publications and contributes to the Flypaper blog and weekly Education Gadfly newsletter.
May 23, 2013
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