Charter schools worry proposal could hurt pensions

COLUMBIA -- Charter school advocates worry a proposed federal rule could force South Carolina and other states to dump charter school employees from state retirement systems.

The proposed IRS and Treasury Department rule could affect about 900 teachers who participate in South Carolina’s pension. Charter school officials fear they could lose most of their teachers and administrators to traditional schools if they’re faced with losing their pension benefits, said Mary Carmichael, executive director of the state’s Public Charter School Alliance.

Many charter school employees began their career in traditional public schools.

“If they’ve been in the state retirement system for 20 years, they’ll go back to keep their retirement,” she said.

The fear stems from a proposed IRS definition change, issued last November, on what can be considered a government plan.

“It is important to note that the proposed regulations are in draft form, and that there is nothing in the draft proposed regulations excluding public charter schools from being treated as governmental entities,” the IRS said in a statement Friday.

The agency did not respond to a follow-up question on whether charter school advocates were misinterpreting the proposal.

While not specifically addressed in the language, charter schools appear to not meet the new definitions, creating a legal risk for states that don’t toss charter school employees from state plans if the rule takes effect as written, Renita Thukral, senior director for legal affairs at the National Alliance for Public Charter Schools, wrote in a letter to the IRS last week.

The group wants the wording revised to specify that charter schools are public entities.

Charter schools are public schools. But they are overseen by a board of parents, teachers and community members, rather than a district board, and are subject to fewer government regulations than traditional public schools.

South Carolina has 47 charter schools. About two-thirds choose to participate in the state retirement system; others just can’t afford to pay the employer’s share of the benefit, Carmichael said.

“These employees would be faced with either leaving their students or lose their retirement savings in our state’s system,” South Carolina’s Republican schools Superintendent Mick Zais wrote in a letter to Treasury Secretary Tim Geithner, dated Feb. 6.

That date was the initial deadline for submitting public comments, but the IRS this week extended that deadline through June. A public hearing in Washington is planned for July 9.

Zais noted the feared effect of the rule as written runs counter to the Obama administration, which promotes charter schools.

More than 2 million students nationwide attend charter schools, an increase of about 200,000 in a single year, according to figures the nonprofit national alliance released in December. The growth represents the largest increase in enrollment over a single year since charter schools were founded nearly two decades ago. That boom is attributed in large part to the Obama administration’s $4.35 billion Race to the Top competition, which rewards states for taking on education changes that include expanding charter schools. Many states changed laws to qualify for the grants.

All 42 states that allow charter schools either require or permit them to participate in their state retirement system, according to the national alliance. It estimates that the proposed rule would affect more than 90,000 charter school employees, mostly teachers – or about 90 percent of the nation’s charter school work force.

“Excluding charter school teachers from state retirement systems could cause significant funding problems for some plans,” Zais wrote. “Though hopefully unintentional, this rule will only serve to leave students subject to greater limitations in accessing an education that best meets their needs.”

The proposed rule comes as states look to reform their pension systems.

South Carolina legislators say shoring up the retirement system is a top priority for this year. The state’s unfunded liability of $13 billion represents the difference in the state portfolio’s assets and the cost of awarding benefits if everyone currently vested in the system retired immediately.

The 900 charter school teachers are among more than 190,000 employees and 111,000 retirees in South Carolina’s main retirement plan for workers in state and local governments and schools. The state has separate retirement plans for police officers, legislators, judges and National Guard employees.