Charter school teachers would be hit hard by new Treasury Department ruling on pensions

Michael Podgusrky, Stuart Buck, and Renita Thukral

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.