Charter School Teachers Subsidize State Pension Plans

By 09/22/2014

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Peter Greene and Neerav Kingsland have been debating the financial efficiency of public charter schools. Rather than wade into that debate, I’ll take on one element of it that’s rarely mentioned: teacher pensions.

To begin with, Kingsland is absolutely right to point out that states have engaged in fantastic accounting practices when it comes to their pension plans. States have not paid for pension costs on an honest accounting basis, and they have accrued billions of dollars in pension debt that avoids so-called “balanced budget” requirements.

Most importantly, Greene makes a big mistake when he writes that charters can avoid pension or other benefit costs through high turnover rates. In fact, the majority of states with charter schools require them to participate in the state pension plan. In those places, Greene’s argument is exactly backward: Charter schools and their teachers pay the same high employer and employee contribution rates as all other schools, but higher turnover rates mean their teachers will get much less in return. Charter schools (and other urban schools with high turnover) subsidize the retirements of everybody else!

In fact, much of this story is broadly applicable beyond charter schools. Charters serve higher concentrations of low-income students, on average, than other schools and turnover tends to be higher in schools like that. But even within public school districts, some schools have much higher turnover rates than others. State pension plans treat them all the same, and we end up in a situation where there are some big winners at the expense of lots of small losers. Charter school teachers tend to be on the losing end.

Even in the places where charter schools are not required to participate, state pension plans impose rules that disadvantage teachers who move into or out of the system. Pension plans impose a retirement savings penalty on teachers who move across state lines or who leave teaching. Those same rules punish any teacher or principal who may wish to transfer between a traditional public school and a charter school.

Finally, there are those who see the current state of affairs–where new workers are propping up a system that has over-promised what it can actually deliver–and believe we can’t afford to stop putting new workers into it. What they are essentially saying is the pension system is in such bad shape that we need to keep forcing new people into it, and that certain groups of teachers–especially ones who are newly entering the profession or ones who work in urban schools or charter schools–should sacrifice their own retirement savings for the good of the pension system. That’s a terrible argument, and at some point policymakers will have to realize that placing new teachers into a bad pension system doesn’t solve the problem, it just delays the inevitable.

– Chad Aldeman

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