New Orleans — Daunted by the high cost of the state teachers pension system, charter schools are switching to 401(k)-style plans, forcing longtime teachers to decide if they’re willing to accept a smaller, less-certain retirement package or if they’ll change schools to keep their pension.

The dilemma stems from a $10.8 billion unfunded liability at the Teachers Retirement System of Louisiana, part of a larger debt at the state’s pension systems resulting from risky investments, erroneous market predictions and a history of inadequate contributions.

To make up the debt, employers have to pay substantially more than they would contribute to a 403(b) plan, which operates like a 401(k).

For every dollar that a school puts into the retirement system, a quarter goes to a current teacher’s pension. The rest is put toward that $10.8 billion shortfall.

Some say the pension system has become prohibitively expensive. Most of the charter schools in Orleans Parish — 47 of 73 — don’t participate.

One of them is KIPP New Orleans, which has nine schools in Orleans Parish. Costs of the state plan are too uncertain, KIPP Director of Advocacy Jonathan Bertsch said, and participating means “having fewer teachers in the classroom.”

For the 2011-2012 school year, KIPP contributed $436,000 to employees’ 403(b) plan, Bertsch estimated. That’s 1.5 percent of its total expenses.

Had the school enrolled in TRSL that year, it would have spent about $3.7 million, or 13 percent of its expenses.

Friends of King, which runs Dr. Martin Luther King Charter School for Science and Technology and Joseph Craig Charter Elementary School, voted in September to leave the pension system.

Schools that withdraw put their veteran teachers in a tough spot because they could end up with far less money in old age than they’ve counted on. The difference could be large enough to convince some teachers to switch to schools that stay in the pension system.

To see how the shift away from the plan would affect teachers, take a teacher with 10 years invested.

Now 55, this hypothetical teacher hopes to retire at 65 with 20 years of service. He earns about $46,000 a year now, and he figures in 10 years he’ll make just over $60,000 a year, based on the raises he’s seen so far.

State retirement officials say they will calculate his pension — estimated at $2,500 a month for life — based on his three highest-grossing years.

If the teacher’s school stops contributing to the pension this year, his pension will be based on a salary closer to $46,000 than $60,000. In that case, his pension would be about $960, based on 10 years of service and the lower salary.

The teacher has two options:

One is to cash out his contributions to the system so far — close to $34,000 — and put that money into the 403(b) plan that his charter school offers instead.

The alternative is to leave the money in the state system, become an inactive member and start contributing to a 403(b) plan to supplement the lower pension check.

In either case, there’s no guarantee such a teacher will end up with a retirement income close to what he would’ve gotten if he had stayed in the pension system.

Although the example is hypothetical, it is representative. For Patricia Mims, a 20-year veteran teacher now at Benjamin Banneker Elementary School, the implications are all too real.

She balked when her former employer, the Algiers Charter School Association, announced last year that it was considering a switch to a 403(b) plan. In the end, the Algiers charter group decided against it.

The state pension system is a “for sure” option for teachers, she said, and though she recognized that it costs schools more, she argued that forcing teachers to drop out is a betrayal of what they’ve been promised.

TRSL has been pricey for schools. They have to contribute 24.5 percent of their TRSL-eligible payroll to the system.

For the 2011-2012 school year, the Algiers Charter School Association, which manages Mims’ former school Eisenhower and seven others, spent $6.8 million on pension benefits, or about 12 percent of total expenses.

And the required contribution has gone up in recent years; it was 15 percent a few years ago.

Those hikes are a trend among the four largest state retirement systems as they attempt to plug an $18.5 billion hole.

The normal cost of covering retirement benefits for teachers is only about 6 percent of payroll. But it costs another 19 percent to cover the $10.8 billion funding shortfall at TRSL.

Caroline Roemer Shirley, who heads the Louisiana Association of Public Charter Schools, said the pension system is an “outdated program that has not changed with the profession. It was a system created at a time when teacher salaries were low and people stayed in a district for their entire careers.”

Now, schools in New Orleans choose from those longtime, local teachers as well as recruitment programs like Teach for America and Teach NOLA, which attract less-experienced teachers from around the country and may not make a career of teaching in Louisiana.

State system officials dispute that its pension-based approach to retirement is outdated.

Retirement system general counsel Katherine Whitney said pensions offer reliable retirement security to many people, and the state plans do offer some portability. Teachers’ retirement savings follow them if they move to other public jobs, and the pension system allows people with credit to transfer that to other state pension systems.

Lauren Godo, a second-year teacher at International High School of New Orleans, is a fan of her 403(b) plan, which lets her choose how much to save for retirement. She’s still “drowning in debt” from college loans, she said, and a pension plan that gobbles 8 percent of her pay is less appealing than saving less in a 403(b).

Mims, however, began her career in the pre-Katrina era when virtually all schools were run directly by the Orleans Parish School Board and, by law, participated in the pension plan. Now, though, more than 80 percent of Orleans Parish schools are chartered, and state law gives them the leeway to opt out of the pension system.

Mims said benefits were a major factor in her decision to move from Dwight Eisenhower to Benjamin Banneker, which is likely to stay in the pension system.

“I wouldn’t go to someplace that’s not going to give me those benefits,” she said. “I know the retirement systems are in trouble … and I don’t know how to fix that.

“But I do know that as someone who has been in TRSL for a minute, I have to think about my future too.”

This story was reported by The Lens, at, an independent, nonprofit newsroom serving New Orleans.

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Teachers face tough choices as charter schools drop pensions