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Charter Schools Set to Be Locked Into Pension Ponzi Scheme

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Pension costs could result in teacher layoffs

Sen. Butch Gautreaux’s (D-Morgan City) new legislation would force charter schools to remain tied to the state’s underfunded teachers’ retirement system, making it more difficult to transition to a 401(k) type plan. Gautreaux believes the Teachers Retirement Bill (SB6) is necessary to protect the existing system and to ensure that all plan participants cover their own costs without passing them off to other school systems.

Under SB 6, any individual school system that terminated its participation in the teachers’ retirement plan would be required to pay  the unfunded accrued liabilities (UAB) attributable to that school system’s employees.

The Teachers’ Retirement System of Louisiana (TRSL) is the state-run pension system for school employees. It is also the state’s largest public retirement system as it provides services and benefits to over 16,000 individuals. However, TRSL is also beset with an unfunded liability of $9.3 billion, according to the latest Comprehensive Annual Financial Report.Charter school representatives have warned that it may be necessary to cut jobs as a result of the increased employer contributions needed to cover TRSL costs.

“As far as this school is concerned, the net difference between our staying in TRSL and providing a reasonable 401(k) for employees is a staggering $550,000,” Mickey Landry, head of the Lafayette Academy Charter School, said.  “That is an annual figure.  What that means is that we will have to close a huge budget gap.  Since we have already cut expenses everywhere we could because of previous dramatic increases in employer contributions, stagnant MFP  funding, and the phasing out of one-time post-Katrina funding, our only place to cut is in personnel.  At our average salaries, that means we will lose 8-10 teachers or paraprofessionals.  So, ultimately, it means that this bill is a jobs-killing bill.”

The employer contribution will be 23.1 percent for FY 2012, which is up 15 percent from just three years ago, Landry noted. The school retirement bill “does not encourage responsibility, transparency, or judicious investment management on TRSL’s part,” he added. Landry also said he expects Gov. Bobby Jindal to veto the legislation.

For his part, Sen. Gautreaux insists the bill  is necessary to ensure all plan participants meet their financial responsibilities.

“There seems to be a different set of rules for charter schools under the Jindal Administration,” Sen. Gautreaux said. “But the fact of the matter is that they are not different from any other employer. If an employer is permitted to leave this system without paying their portion of the unfunded accrued liabilities, the rest of the employers would have to meet that cost.  The whole point of the bill is to make certain that each participant is responsible for their own costs.”

But Brigitte Nieland, vice-president of the Louisiana Association of Business and Industry (LABI), disagrees. There is a concerted effort at work to “financially devastate and cripple the charter school movement,” she said.

About 17.3 percent of the 23.70 percent of any an individual teachers TRSL contribution goes to the unfunded liability, Nieland points out.

“Charter schools did not create the decades-long state retirement systems’ unfunded accrued liability problem,” she  said.  “This bill passes on astronomical costs to a relatively few schools, which do not have the capacity to share or absorb those costs.  It is an undue burden on those schools whose operations and education mission will be unduly compromised and harmed.  Charter schools should not be tasked with solving a system-wide state problem.”

Kevin Mooney is an investigative reporter with the Pelican Institute for Public Policy. He can be reached at Follow him on Twitter.