So, too, do employees of six teachers unions and a high school athletic association — all of them privately owned and operated.
They are beneficiaries of the Teachers’ Retirement System of Louisiana, a state pension fund that currently has a $10.8 billion shortfall in the amount of money needed to meet all of its obligations to retirees. TRSL has just announced yet another increase to the amount school systems must contribute toward retirement costs — from 24.5 percent of total payroll to 27.2 percent. That means that for every $1 million a local school board pays its teachers, it must spend $272,000 for retirement benefits.
Currently, TRSL pays more than $1.3 million annually to 42 retirees or family survivors of the state’s two largest teachers’ unions: the Louisiana Association of Educators and the Louisiana Federation of Teachers. A total of $2 million is paid to retirees and beneficiaries or survivors of all six unions and the Louisiana High School Athletic Association. Those same organizations are now contributing less than $1.3 million for current employees.
But federal authorities soon may be putting a stop to the practice.
The Internal Revenue Service has proposed new regulations designed to better define what constitutes a “government plan,” with all of the special treatment that goes along with it, such as exemptions from certain Employee Retirement Income Security Act provisions. Its reason for suggesting revisions: a “growing number of requests for governmental-plan determinations from plan sponsors whose relationships to governmental entities are increasingly remote.”
Historically, the IRS, the Department of Labor and the Pension Benefit Guaranty Corp. informally conferred on a case-by-case basis as to whether a particular retirement system would be granted governmental plan status. Among the proposed factors for determining eligibility should the new regulations take effect: that the only participants covered by the plan are employees of a government entity, that all institutions eligible for governmental plans have “governing officers appointed by state officials or publicly elected,” and that a government body be responsible for all the debt a participating institution accumulates.
Although the Louisiana Legislature and not TRSL itself is to blame for allowing non-governmental employees to collect a state pension, there is mounting concern that the system could be in violation of those new IRS regulations.
“I don’t know how this came to be,” says Sen. Elbert Guillory, D-Opelousas, who oversees the Senate Retirement Committee. “I know if we were doing it today, this would not be the case. We have people who have been contributing to the system for decades, so it would not be fair to remove them. But we will not be adding any more to the system, I can assure you of that.”
ON THE HOOK
Rep. Alan Seabaugh, R-Shreveport, has proposed legislation this session designed to address one of the nongovernmental entities participating in TRSL: the Louisiana High School Athletic Association.
Since 1991, LHSAA employees have been enrolled in the public teachers’ pension system. The practice of adding new employees of the organization to the system ended in July 2011, but this bill as written would boot the existing beneficiaries as well, refunding only their employee contributions — without any interest earned or employer contributions. The organization has eight employees paying into the fund and 10 collecting a pension.
The legislation was prompted by the Louisiana Supreme Court ruling in January that the organization founded in 1920 by a group of school principals has always been a private entity, not subject to legislative oversight.
“It’s a little bit of a scary situation as far as the IRS is concerned,” Seabaugh says. “There are some questions of the legality of putting them in the Teachers’ Retirement System in the first place. We probably shouldn’t have. But honestly, at the time it was done, we thought they were quasi-public. The fact that the court has now ruled them to be private changes things.”
At press time, however, no legislation had been introduced to address the teachers unions that are also members of the pension fund.
Currently, 28 union employees are actively contributing to the fund, and 53 retirees, beneficiaries or survivors are already collecting a pension.
TRSL spokeswoman Lisa Honoré says when the IRS issued the retirement systems governmental plan qualification in the past, the IRS determined that employees of the private, nonprofit employers were de minimis, meaning their presence or absence in the plan is not numerically significant.
Louisiana Federation of Teachers employees are allowed to continue participation in TRSL only if they previously were members of the pension fund. Nonbargaining employees of the Louisiana Association of Educators have the option to participate in the system, while collective bargaining employees are required to be TRSL members. And the employees of the Associated Professional Educators of Louisiana have the option to participate.
But the problem with allowing employees of private entities into a government pension plan, says Rep. Kevin Pearson, R-Slidell, who chairs the House Retirement Committee, is that taxpayers are responsible for those benefits if the retirement system experiences financial troubles.
“These are private organizations in the state’s guaranteed pension system,” he says. “You look back and wonder how that happened over the years and why the taxpayers are on the hook for liabilities that have been created. If you ask the taxpayers if they want to back and fund a private organization’s pension, I think most of them would prefer not to. I think it is something that needs to be discussed.”
Les Landon, director of public relations for the Louisiana Federation of Teachers, says the organization’s staff was allowed to participate in TRSL in 1972. In 1991 the law was amended to mandate that any new employees who were not already members of TRSL enter into a different retirement plan.
“We are not concerned about how the ruling will come down. Our concern is with the long-term health of the retirement system,” Landon says. “We patiently await the ruling of the IRS regarding plan participation for a number of groups because we know it will impact investment strategies, and the overall financial health of TRSL. We also believe that out of fundamental fairness for employees of all types at all schools there should be set rules about participation in TRSL and when and how participation can be terminated. The ruling has been pending for some time, and we will continue to keep our members informed about its progress.”
The Louisiana Association of Educators did not respond to emails or phone calls requesting comment.
There are concerns that the new IRS regulations could potentially have a much broader impact, affecting some 27 Louisiana charter schools with 1,265 employees also contributing to the TRSL pension plan.
It isn’t clear yet whether employees of charter schools — which are operated by private organizations but receive public funding and are subject to some government oversight — might be disqualified from public pension plans.
Louisiana isn’t the only state in this predicament. The National Alliance for Public Charter Schools estimates the new regulations could force 95,000 charter school teachers nationwide — about 93 percent of the total charter workforce — to leave their schools or risk losing their pensions. The organization wants the proposed IRS regulations amended to state that charter schools will be considered “agencies or instrumentalities of the state for purposes of defining a governmental plan.”
Not all Louisiana charter schools are at risk: Many have already switched to 401(k)-style plans, concluding that TRSL’s fees are too expensive.
In June, U.S. Sen. Mary Landrieu sent a letter to IRS Commissioner Douglas Shulman, contending that charter schools “clearly serve a governmental function by providing a free, public education under the supervision of the state,” and that the possible fallout of excluding them from public pensions is “plainly inconsistent with Congressional intent.”
Honoré declined to speculate on the potential impact of excluding charter schools from public pension plans until we get clear and formal direction from the IRS.
The IRS previously has said its new guidelines aren’t meant to disqualify charter teachers from state pension plans. Regional IRS spokesman Michael Dobzinski says existing governmental retirement systems will be given time and guidelines for a transition to comply with any new regulations.
“Recognizing that we have never issued regulations on the definition of a governmental plan,” he says, “we anticipate that, once issued, the regulations will have transition rules to deal with situations that are not permissible under the final regulations.”
Guillory says the Legislature is prepared to do whatever is necessary to protect charter school employees and comply with federal laws.
“We have to do something about it,” he says. “We are waiting for leadership from the IRS. We can’t have all these teachers in systems that have no protection. We have to work it out and do something for those persons who might be affected. So we’re looking at it. There are a lot of options.”