Charter school teachers fear IRS rules change

A little-noticed proposed change in Internal Revenue Service regulations could have devastating effects for charter school teachers by making them ineligible for state retirement plans, and they could stand to lose much of the money that they already have accrued.

The proposed rule, released with little fanfare near the end of last year, would make major changes to the definition of “governmental plans,” the federal standard for who can be considered a government employee for the purposes of participating in state pension systems.

“The IRS did not have charter schools in their sights, but whether they had them in their sights or not, it could have negative consequences for us,” said Todd Ziebarth, vice president for state advocacy and support at the National Alliance for Public Charter Schools. “Our concern is that this could raise some questions. It’s a gray area around whether charters would meet the test.”

The proposed change would establish five criteria for determining eligibility in state retirement plans, the most troublesome of which, from the point of view of whether charter school teachers could participate, is a provision stating that “the governing officers either are appointed by state officials or publicly elected.” Another condition is that a government body must be responsible for all the debt a participating institution accumulates.

On the surface, charter schools may not meet either criteria because they are not wholly public institutions. For example, elected school boards do not have hiring or firing power over the employees at a charter school, and charter schools can go bankrupt and out of business without a government guarantee of their debts.

NAPCS estimates that if the rule is enacted, more than 95,000 charter school teachers nationwide — more than 93 percent of the charter workforce — would be forced either to leave their schools or risk losing their pensions.

After an uproar from the charter school community, the IRS last week extended until June a public comment period for the proposed rule, which could go into effect as soon as this summer.

Several Republican members of Congress also are putting pressure on the IRS to clarify its rule or risk inflicting a crippling blow to charter schools, which are responsible for educating more than 2 million students in 41 states and the District.

In a letter last week to the IRS, Republican Reps. John Kline of Minnesota, chairman of the House Committee on Education and the Workforce, and Duncan Hunter of California, chairman of the early childhood, elementary and secondary education subcommittee, said the proposed rule “could unfairly jeopardize the retirement security of charter-school teachers.”

“The draft regulations could effectively prevent many public charter schools from recruiting or retaining veteran traditional public school teachers, significantly interfering with charter schools’ ability to achieve their educational goals,” the two men wrote.

In a post on the IRS website explaining why it drafted the rule, the agency said it was attempting to limit governmental-plan eligibility to those working directly for “an agency or instrumentality of the state.”

The IRS also says it has become “increasingly concerned with the growing number of requests for governmental-plan determinations from plan sponsors whose relationships to governmental entities are increasingly remote.”

The IRS has not named any specific groups of state, county or city employees that could be affected by the change, but in a statement to The Washington Times disputed the notion that the proposed regulation is an attack on charter schools.

“It is important to note that the proposed regulations are in draft form, and that there is nothing in the proposed regulations excluding public charter schools from being treated as governmental entities,” the IRS statement said. “The IRS is accepting and reviewing comments. … [T]axpayers with concerns are encouraged to submit comments.”