Mandatory Participation Harms Many Teachers, Fails to Address Causes of Unfunded Liabilities

(a release from the Pelican Institute For Public Policy, which has issued a report on the effect of the Teachers’ Retirement System of Louisiana on charter school teachers. Download the report here.)

A current House bill in Louisiana (HB 658, authored by Rep. Harold Ritchie (D-Bogalusa) and Sen. Nick Gautreaux (D-Abbeville) would subject charter school teachers to the state-run pension system (the Teachers’ Retirement System of Louisiana, or TRSL). Although it may purport to be motivated by goodwill — the desire to help charter school teachers provide for their retirement — this bill is a bad idea.

First, some teachers may prefer having a better upfront salary, rather than having to wait for 30+ years to collect money earned. Indeed, TRSL participation is harmful to many teachers, such as those who teach for a few years before moving to another career, or people who develop an expertise in some other field (say, engineering) and then become teachers later in life. These teachers are often cheated by a retirement system that provides full benefits to lifetime employees. Charter schools will be better able to hire these teachers if they are able to offer higher salaries, rather than being forced to allocate 23.5% (or 28%) of salaries to a pension system that will not benefit some teachers at all.

Second, forcing charter schools to participate in TRSL would tie them to a sinking ship. As we document in this report, TRSL admits to being over $9 billion in the hole, but that figure depends on assuming that TRSL’s investments will earn 8% forever. A more realistic assumption akin to what private plans are allowed to use (6%) shows that TRSL is actually $17.5 billion in the hole. Thus, the true motivation behind the charter school bill is to force more warm bodies into the system to make up for all the public school teachers and public school districts that didn’t save enough to pay for promised pensions.