BGA: Charter schools fined $1.8M for late pension contributions

As part of its struggle to regain fiscal health, the pension fund for public school teachers in Chicago has slapped at least $1.8 million in fines on several city charter schools for late payments that in some cases date back years.

Though privately run, charters receive taxpayer money and are considered part of the Chicago Public School system. As such, charter employees with teaching certificates are members of the Chicago Teachers’ Pension Fund and are required by law, like other CPS teachers, to contribute a portion of their salaries to fund future retirement benefits.

But records obtained by the Better Government Association show that many charter schools have been repeatedly late in remitting those payroll deductions to the pension fund, reducing the money it has available to invest. A 2013 state law authorized the pension fund to penalize charters for late payments.

Since then, the fund has identified more than $10 million in delinquent contributions from charter schools, according to interviews and records obtained through the Illinois Freedom of Information Act. The city’s largest charter system, The Noble Network of Charter Schools with 16 campuses serving 11,000 students, accounts for nearly one-fourth of those delinquent payments, records show.

Fund officials say that the charters have made up the $10 million in late contributions, though it is possible more money is owed but not yet identified. In dispute, however, is the size and appropriateness of fines assessed because of the late payments.

Since 2014, the fund has levied $2.4 million in fines for late payments. Some charter operators have successfully appealed, and others are still waiting for a determination. That latter group includes Noble, which has challenged its $204,800 fine.

Only $170,800 in late penalties have so far been collected from charters, records show, leaving more than $1.6 million outstanding.

During the same time frame, the pension fund said there were no late remittances from regular Chicago schools.

“We certainly try to be responsive to the needs of the charter schools, but also we have to be responsive to the needs of the individuals that are considered our members,” said Chuck Burbridge, executive director of the $10.7 billion pension fund. “We need to pursue that contributions are made on their behalf because they are entitled to that benefit whether or not the charter school makes that contribution.”

Representatives of several charters that have been hit with fines said any payment delays were not deliberate but rather the result of bureaucratic miscommunication or technological problems emanating from the pension fund itself.

Charter schools also cited unresolved questions over when payments are due and which employees are considered members required to pay into the fund. Many charter schools, for example, contract for positions such as substitute teachers or paraprofessionals through third parties, and those workers technically remain separate from a school’s payroll.

“There’s a lot of confusion,” said Andrew Broy, president of the Illinois Network of Charter Schools. “Issues like that come up that just don’t happen with CPS.”

Burbridge acknowledged that some late payments can be blamed on computer glitches, adding that fines have been waived in such cases.

But when penalties are assessed, they can be steep. The fund charges up to $200 plus interest for each day a contribution is considered late. A payroll remittance is subject to penalty if it is more than 30 days late.

For some schools, the total of fines has exceeded the size of the late payments.

Fund records show that Kwame Nkrumah Academy in the Roseland neighborhood, a charter that serves 210 children in kindergarten through third grade, was late in remitting $126,700 in employee pension contributions between 2014 to 2016. The outstanding penalty has grown to $356,800, records show.

Those numbers were disputed by Carol Edwards, the academy’s chief educational officer. She told the BGA that the school’s “pension payments have never been late, and we have never paid a fine.” She did not respond when asked whether the academy had received notice of being fined.

Most of the city’s 58 charter school networks have faced late payment fines, records show. In all, those networks operate 125 elementary and secondary schools in the city, according to CPS.

Pension fund officials acknowledge that the late payment problem may be greater than what records reflect. In October, after BGA inquiries about late payments, fund trustees commissioned a payroll audit for select charter schools.

Charter schools annually submit about $20 million in employee contributions to the fund, so the $10 million turned in late since 2014 represents a sizable share of the overall amount. By law, an amount equal to 9 percent of each teacher’s pay is supposed to be turned over to the fund. Many charters have agreements with their teachers to split that cost.

In addition to employee contributions, the pension fund receives money from CPS for the employer’s share of pension contributions. CPS’ employer share in fiscal year 2016 totaled $676 million. The Chicago Teachers’ Pension Fund, only two decades ago flush with resources, now has only 52 percent of what it needs to cover obligations to current and future retirees.

The underfunding followed a 1995 state law that allowed then-Mayor Richard M. Daley to use the employer share of pension contributions for other things, something he did for most of the rest of his time in office. Near the end of Daley’s final term, state lawmakers approved another pension payment holiday that extended into the early years of Mayor Rahm Emanuel’s first term.

The diversions did serious financial harm to the pension fund, which pays retirement benefits to about 28,000 former Chicago teachers and administrators.

In August, the BGA reported on another collection effort by the pension fund: After mistakenly overpaying retirees by $2.78 million between 2012 to 2014, the fund began asking members to pay back the extra money.

Katie Drews is a reporter for the Better Government Association.