Pensions under Pressure: Charter Innovation in Teacher Retirement Benefits

Public school districts are facing twin challenges: maintaining a labor supply of qualified teachers while shoring up the deteriorating system that compensates them. Keeping public-school teachers' pensions plans flush is expensive, and it accounts for a growing share of education spending. In some states, public charter schools provide an important alternative: charters have the flexibility to opt out of the state pension plan and develop their own retirement plans. The charter sectors in these states have the opportunity to serve as laboratories of innovation, not only in terms of educational programs but also as examples of management strategies that could be applied to the broader teacher labor market. To explore this possibility, the authors studied retirement plans and surveyed charter schools in five states with such flexibility: Arizona, California, Florida, Louisiana, and Michigan. They found a growing number of schools, especially those run by management organizations, are choosing to opt out of state pension plans. In lieu of standard plans, charters are providing various, more portable defined-contribution options and incentives such as 401(k) and 403(b) plans, potentially providing a new way to ensure that teachers' retirements are secure. The autonomy provided to charter schools positions them to lead by example on this and other important issues.