Charter School Pensions: The Sum of Teacher Unions’ Fears

As if the teachers unions need another reason to hate charter schools, here’s one: The finding, from a new Fordham Institute report, that when given a chance to opt out of state pension systems, many charter schools take it. Furthermore, a fair number of these charters replace traditional pensions with nothing at all.

Why is this such a big deal? It’s not just that unions will worry that charter schools are mistreating their teachers. More fundamentally, if charter schools continue to multiply, and they are allowed to opt out of state retirement systems, those systems will collapse under their own weight–an outcome the unions will fight to the death.

First some background. The new Fordham study, by Michael Podgursky and Amanda Olberg, examines six large states where charters are allowed to opt out of the traditional pension system. In a few of these states, including California and Louisiana, most charters stay in the system. (That’s largely because teachers in those states don’t participate in Social Security; see the report for an explanation about that.) But in other states, including Arizona and Florida, most charters bolt. Typically they offer a 401(k) or 403(b) instead, but almost one-quarter offer either no pension or a plan without an employer match.

On this latter point, Rick Kahlenberg of the Century Fund hit the charter movement hard. In a Flypaper forum (that also featured entries from Rick Hess and Karen Hawley Miles), Kahlenberg wrote: “In the long term, what kind of talent can a school attract—and then retain over time—when one of the basics of the employer-employee social compact is simply eliminated altogether?”

But that “social contract” is already in tatters in the private sector. An alternative view is that charter schools are behaving like other non-profit organizations, which is what they are. Mostly they offer 401(k) style plans and mostly they are not terribly generous. But, as Lighthouse Academies CEO Michael Ronan told the New York Post, that’s because of the kinds of (young) teachers they are recruiting. “It’s certainly more cost-effective for the school and we think it’s a better benefit for the workforce population that we have — because it’s portable and it’s something they’re going to hang on to.”

You can second-guess the schools for their recruitment and compensation strategies. But it doesn’t make sense to fault them for spending money on mission-critical investments: Attracting great teachers (through higher pay instead of elaborate retirement benefits) rather than propping up pension systems. And putting money in the classroom instead of setting it aside for workers who retired years ago. As in other fields, this is what start-ups do: They out-compete legacy providers by eschewing legacy costs.

The unions know it, and don’t like it. And you can’t blame them; we know that retired or soon-to-be-retired teachers are the most active inside unions, and have the most to lose if retirement benefits change. And nobody wants to sharply curtail the pensions of teachers (mostly women) who spent their lives inside the classrooms.

But we have an unsustainable system, and we face a choice: Invest in the young or keep our promises to the old. This is the big education battle to watch in the months and years ahead.

-Mike Petrilli

Last Updated


Notify Me When Education Next

Posts a Big Story

Business + Editorial Office

Program on Education Policy and Governance
Harvard Kennedy School
79 JFK Street, Cambridge, MA 02138
Phone (617) 496-5488
Fax (617) 496-4428

For subscription service to the printed journal
Phone (617) 496-5488

Copyright © 2024 President & Fellows of Harvard College