TO:

Members of the Legislative Commission on Pensions and Retirement

FROM:

Lawrence A. Martin, Executive Director

RE:

Mandated Commission Interim Project: Appropriate Mechanism For Recovering Unpaid Retirement Contributions From Closed Charter Schools (Third Consideration)

DATE:

January 14, 2002

 

Introduction

Special Session Laws 2001, Chapter 10, Article 13, mandated the Legislative Commission on Pensions and Retirement to study the issue of the recovery of unpaid member and employer retirement plan contributions from closed charter schools and to recommend a mechanism for their recovery. The report, which is required to include draft proposed legislation to implement the Commission’s recommendations, is due by February 15, 2002.

This meeting is the third consideration of the topic. In order to meet its mandated report date, this meeting should be the final consideration of the topic by the Commission.

This Commission staff issue memorandum is the third issue memorandum on the mandated Commission interim study topic. The prior Commission staff issue memoranda on the topic reviewed the current status of public pension plan coverage for charter school employees, the extent of unpaid retirement plan contributions from currently closed charter schools, the magnitude of the current charter school retirement plan contribution stream, which defined the potential for future defaults, and identified and reviewed available remedies for unpaid charter school retirement plan contributions and the available mechanisms for recovering previously unpaid closed charter school retirement plan contributions. This issue memorandum identifies some remaining questions about the topic and suggests some areas for the Commission to request additional testimony from the five affected retirement plans and from the Department of Children, Families and Learning. Attached to this issue memorandum is a draft report based on the prior Commission staff issue memoranda on the topic.

Additional Questions about the Topic; Additional Testimony Needed
  1. In General

Although the Commission staff has received a substantial amount of information from the Department of Children, Families and Learning (CFL), the Duluth Teachers Retirement Fund Association (DTRFA), the Minneapolis Teachers Retirement Fund Association (MTRFA), the St. Paul Teachers Retirement Fund Association (StPTRFA), and the Teachers Retirement Association (TRA) in response to a prior request for information, actual testimony on the topic at the two prior Commission hearings has been limited and there remain aspects of the topic that the Commission would benefit from exploring. These aspects relate to the actual process used by the affected public pension plans to attempt to collect closed charter school retirement contributions, the procedures used by the various public pension plans to identify all eligible plan members in charter school teachers and support personnel and to avoid membership omissions and omitted contributions, the process used by the affected public pension plans to handle the creation of new charter schools, and the assistance provided by CFL to both charter schools and the affected retirement plans with respect to retirement coverage and retirement contributions.
  1. Process in Attempting to Collect Closed Charter School Retirement Contributions
  1. Minnneapolis Teachers Retirement Fund Association (MTRFA)

Testimony and Information to Date. MTRFA provided the information requested by the Commission staff in July 2001, and also included a portion of the annual financial report of the Frederick Douglass Charter School. In testimony in December 2001, MTRFA Executive Director Karen Kilberg generally commented on the difficulties in learning about the creation of charter schools, indicated that gaining current contributions from charter schools was difficult, and reported that MTRFA had been involved in at least one CFL training session for new or ongoing charter schools.

Additional Information Needed. MTRFA has not provided any detailed information on the timetable of the contribution problems relating to the Frederick Douglass Charter School. Since the Frederick Douglass Charter School default was the greatest dollar amount default, the Commission should ascertain the extent of vigilance by MTRFA in pursuing these unpaid charter school contributions.

Additional Questions for MTRFA:

  1. Number of Affected Frederick Douglass Charter School Teachers.

    How many teachers were involved with respect to the unpaid contributions by the Frederick Douglass Charter School?

  2. Extent of Frederick Douglass Charter School Default.

     How many pay periods were involved in the unpaid contributions of the Frederick Douglass Charter School?

  3. Prior Notice of Charter School Closure.

    How much advance notice did MTRFA receive about the closure of the Frederick Douglass Charter School?

  4. Unpaid Contribution Recovery Attempts.

     What attempts did MTRFA make to recover the Frederick Douglass Charter School amounts previously?

  5. Sponsor Involvement.

     Did MTRFA contact the charter school sponsor, Special School District No. 1 (Minneapolis), about the unpaid Frederick Douglass Charter School contributions and did the sponsor provide any assistance?

  6. Department of Children, Families and Learning (CFL) Assistance.

     How much assistance did CFL provide in notifying MTRFA of the charter school closures and in collecting any unpaid or late contributions from closed charter schools?

  1. Public Employees Retirement Association (PERA)

Testimony and Information to Date. PERA provided the information requested by the Commission staff in July 2001. PERA has provided very limited testimony on the topic in prior Commission meetings.

Additional Information Needed. The Frederick Douglass Charter School also failed to pay retirement contributions to PERA, although the amount is sizably smaller than the MTRFA defaulted contributions. It is unclear why PERA suffered less of a contribution loss than MTRFA. It also is unclear based on the information and testimony provided prior to January 11, 2002, whether or not there are PERA procedural or system strengths that resulted in the smaller default.

Additional Questions for PERA:
    1. Number of Affected Frederick Douglass Charter School Support Personnel.

      2. How many support personnel were involved with respect to the unpaid Frederick Douglass Charter School contributions?

    2. Extent of Frederick Douglass Charter School Default.

      3. How many pay periods were involved in the unpaid Frederick Douglass Charter School contributions?

    3. Prior Notice of Charter School Closure.

      4. How much advance notice did PERA receive about the closure of the Frederick Douglass Charter School?

    4. Unpaid Contribution Recovery Attempts.

      5. What attempts did PERA make to recover the unpaid Frederick Douglass Charter School retirement contribution amounts previously?

    5. Sponsor Involvement.

      6. Did PERA contact the charter school sponsor, Special School District No. 1 (Minneapolis), about the unpaid Frederick Douglass Charter School contributions and did the sponsor provide any assistance?

    6. Department of Children, Families and Learning Assistance.

How much assistance did CFL provide in notifying PERA of the charter school closures and in collecting any unpaid or late contributions from closed charter schools?

  1. Teachers Retirement Association (TRA)

Testimony and Information to Date. TRA provided the information requested by the Commission staff in July 2001. TRA has provided very limited testimony on the topic in prior Commission meetings.

Additional Information Needed. TRA has unpaid retirement contributions from two closed charter schools, the Central Minnesota Deaf School and the Dakota Open Charter School. The amounts due are very modest. It is unclear whether the TRA experience of modest unpaid closed charter school retirement contributions is due to system or procedural strengths or other factors.

Additional Questions for TRA:
    1. Number of Teachers Involved in the Default.

      2. How many teachers were involved with respect to those unpaid contributions?

    2. Extent of Contribution Default.

      3. How many pay periods were involved in the unpaid contributions?

    3. Prior Notice of Charter School Closures.

      4. How much advance notice did TRA receive about the closure of these charter schools?

    4. Unpaid Contribution Recovery Attempts.

      5. What attempts did TRA make to recover these amounts previously?

    5. Department of Children, Families and Learning Assistance.

How much assistance did CFL provide in notifying TRA of these charter school closures and in collecting any unpaid or late contributions from closed charter schools?

  1. Department of Children, Families and Learning (CFL)

Testimony and Information to Date. CFL provided the information requested by the Commission staff in July 2001. CFL has declined opportunities to testify before the Commission during the prior two Commission meetings on the topic.

Additional Information Needed. Three Minnesota charter schools, the Central Minnesota Deaf School, the Dakota Open Charter School, and the Frederick Douglass Charter School, closed before paying their full retirement contributions to three Minnesota retirement plans, the Minneapolis Teachers Retirement Fund Association (MTRA), the General Employees Retirement Plan of the Public Employees Retirement Association (PERA), and the Teachers Retirement Association (TRA). The most significant amount of unpaid retirement contributions related to the Frederick Douglass Charter School and to MTRFA. In information previously provided to the Commission from CFL, the sole information CFL provided about the Frederick Douglass Charter School was a portion of the charter school’s annual financial report following its closure, including the retirement contribution default amount. CFL potentially could assist in identifying and implementing a recovery remedy for the past contribution defaults and potentially could provide certain preventive assistance to avoid future defaults. CFL, which knows the most about charter schools in the state, has not yet been particularly helpful to the Commission in addressing this issue beyond the initial Commission staff information request.

Additional Questions for CFL:
    1. Knowledge of Past Charter School Closures.

      2. How long in advance of the closure was CFL aware of the likelihood of these three charter schools closing? If CFL had information on a potential closure before these charter schools actually closed, did CFL share that information with the affected retirement plans and when did that information sharing occur?

    2. CFL Assistance in Recovering Unpaid Contributions.

      3. What assistance did CFL provide MTRFA, PERA, and TRA in recovering these unpaid contributions? Were CFL’s procedures with respect to the Central Minnesota Deaf School, the Dakota Open Charter School, and the Frederick Douglass Charter School different than those utilized with respect to the eleven charter schools that closed without defaulting on accrued retirement contributions (i.e. Fort Snelling Academy, Learning Adventures Middle School, PEAKS-Faribault Charter School, PEAKS-Pillager Charter School, Prairie Island Community School, Right Step Academy, Skills For Tomorrow Junior High School, Strategies For Success Charter School, Summit School For The Arts, and Toivola-Meadowlands Charter School)?

    3. Potential Creditor Priority.

Were other creditors of the Central Minnesota Deaf School, the Dakota Open Charter School, and the Frederick Douglass Charter School paid in preference to the retirement plans, and, if so, did CFL play any role in determining the priority for creditor satisfaction?

  1. Process in Collecting Omitted Retirement Contribution Amounts
  1. Minneapolis Teachers Retirement Fund Association (MTRFA)

Situation. There are at least three current charter schools indicated as operating in Minneapolis for which MTRFA has not reported having any members. These current charter schools are:

Blue Sky Charter School

Excell Academy

Minnesota Institute of Technology

Additional Information Needed. While recent year information relating to the Blue Sky Charter School indicates nominal revenues ($45,000 in federal money), Excell Academy received $600,000 in recent state aids and the Minnesota Institute of Technology Charter received $2.5 million in recent state aids. Thus, some employment activity likely is occurring in two of these three schools, but no retirement coverage for teachers has been indicated by any teacher retirement plan. It is likely that there are omitted retirement plan contributions for some period of time for these two charter schools.

Additional Questions for MTRFA:
  1. Basis for Exclusion of Teachers from Retirement Coverage.

    2. Are the teachers in these charter schools appropriately excluded from MTRFA retirement coverage? Under what provision of Minnesota Statutes, Chapter 354A, are the teachers at each charter school properly excluded from MTRFA coverage?

  2. Omitted Contribution Review Process.

    3. What steps has MTRFA taken with respect to each charter school to check for omitted members and omitted contributions?

  3. CFL Assistance in Process.

What assistance has CFL provided in notifying MTRFA of the creation of these charter schools and in identifying any potential omitted MTRFA members or contributions?

  1. St. Paul Teachers Retirement Fund Association (StPTRFA)

Situation. There are at least three current charter schools indicated as operating in St. Paul for which StPTRFA has not reported having any members. These current charter schools are:

Academia Cesar Chavez

Avalon School

Strategies for Success Charter School

Additional Information Needed. Although PERA indicates that a determination on the eligibility for retirement coverage for support personnel is pending, StPTRFA and CFL indicate that the Strategies for Success Charter School has closed. The Academia Cesar Chavez received $1.2 million in state aids during the most recent year, while the Avalon School received $0.8 million. At those aid levels, teachers should have been employed by the charter schools, but StPTRFA indicates no active members for any of these charter schools, meaning that there is a strong possibility of omitted retirement contributions.

Additional Questions for StPTRFA:
    1. Basis for Exclusion of Teachers from Retirement Coverage.

      2. Are the teachers in these charter schools appropriately excluded from StPTRFA retirement coverage? Under what provision of Minnesota Statutes, Chapter 354A, are the teachers at each charter school properly excluded from StPTRFA coverage?

    2. Omitted Contribution Review Process.

      3. What steps has StPTRFA taken with respect to each charter school to check for omitted members and omitted contributions?

    3. CFL Assistance in Process.

What assistance has CFL provided in notifying StPTRFA of the creation of these charter schools and in identifying any potential omitted StPTRFA members or contributions?

  1. Public Employees Retirement Association (PERA)

Situation. There are at least 24 current charter schools for which PERA has not reported having any members. These charter schools are:

Academia Cesar Chavez (St. Paul)

Agricultural and Food Sciences Academy (Little Canada)

Bluffview Montessori School (Winona)

Cedar-Riverside Community School (Minneapolis)

Cross Lake Community School (Cross Lake)

Duluth Edison Academies (Duluth)

E.C.H.O. Charter School (Echo)

El Colegio Charter School (Minneapolis)

Excell Academy for Higher Learning (Minneapolis)

Face to Face Academy (St. Paul)

Hanska Community School (Hanska)

Harvest Preparatory Charter School (Minneapolis)

HOPE Academy (St. Paul)

Lafayette Public School (Lafayette)

Minnesota Institute of Technology (St. Paul)
Minnesota New Country School (Henderson)

Native Arts High School (Minneapolis)
Nerstrand Elementary School (Nerstrand)

Peaks Charter School-Faribault (Faribault)

Peaks Charter School-Pillager (Pillager)

RiverBend Academy (Mankato)

Strategies for Success Charter School (St. Paul)

Studio Academy (Rochester)

Yankton Country School (Balaton)

Additional Information Needed. The 24 affected charter schools represent 35 percent of the total number of currently (Fall 2001) open charter schools identified by CFL. While some charter schools may utilize management firms or independent contractors to provide support staff functions, it is difficult to believe that all 24 charter schools would have no public employees in addition to teachers (although some of the charter schools appear to have no employed teachers either). These charter schools are likely to have omitted retirement contributions.

Additional Questions for PERA:
    1. Basis for Exclusion of Support Personnel from Retirement Coverage.

      2. Are the support personnel in these charter schools appropriately excluded from PERA retirement coverage? Under what provision in Minnesota Statutes, Section 353.01, Subdivision 2b, are the support personnel at each charter school excluded from PERA coverage?

    2. Omitted Contribution Review Process.

      3. What steps has PERA taken with respect to each charter school to check for omitted members and omitted contributions?

    3. CFL Assistance in Process.

What assistance has CFL provided in notifying PERA of the creation of these charter schools and in identifying any potential omitted PERA members or contributions?

  1. Teachers Retirement Association (TRA)

Situation. There are at least three current charter schools located outside of the cities of the first class which have been in operation but for which TRA has not reported any active members. These current charter schools are:

Agricultural and Food Sciences Academy

Great River Education Center

Pillager Area Charter School

Additional Information Needed. The Pillager Area Charter School, the Great River Education Center, and the Agricultural and Food Sciences Academy receive sufficient state aids (in excess of $300,000 each) for the most recent year in each case to indicate a level of regular educational operations. Thus, some teachers likely were employed by each charter school and state law requires that they have retirement coverage, but TRA does not report any active members for these employers.

Additional Questions for TRA:
    1. Potential Omitted Active Members.

      2. Why are there no TRA active members reported by TRA for the Agricultural and Food Services Academy in Little Canada, the Great River Education Center in Pillager, and the Pillager Area Charter School in Pillager?

    2. Omitted Contribution Review Process.

      3. What steps does TRA routinely take to check for omitted members?

    3. CFL Assistance in Process.

What assistance has CFL provided in notifying TRA of the creation of these charter schools and in identifying any potential omitted TRA members?

  1. Department of Children, Families and Learning (CFL)

Situation. PERA reports that the Right Step Academy never submitted its support personnel for PERA General Retirement Plan coverage although that coverage was required by Minnesota Statutes, Section 124D.10, Subdivision 2, Paragraph (b), and that it left an estimated $196,000 in omitted member and employer contributions upon its closure. That amount would be in addition to any other debts that Right Step Academy left unpaid upon its closure. Additionally, there are at least nine charter schools reported by CFL as being in existence but for which no teacher retirement plan reports teachers as active members, and at least 24 charter schools reported by CFL as being in existence but for which PERA did not report any support personnel as active members. The charter schools involved are:

No Teachers Reported as Active Members:

No Support Staff Reported as Active Members:

Academia Cesar Chavez

Agricultural and Food Sciences Academy

Avalon School

Blue Sky Charter School

Excell Academy

Great River Educational Center

Minnesota Institute of Technology

Pillager Area Charter School

Strategies For Success Charter School

 

Academia Cesar Chavez

Agricultural and Food Sciences Academy

Bluffview Montessori School

Cedar-Riverside Community School

Cross Lake Community School

Duluth Edison Academies

E.C.H.O. Charter School

El Colegio Charter School

Excell Academy for Higher Learning

Face to Face Academy

Hanska Community School

Harvest Preparatory Charter School

HOPE Academy

Lafayette Public School

Minnesota Institute of Technology

Minnesota New Country School

Native Arts High School

Nerstrand Elementary School

Peaks Charter School-Faribault

Peaks Charter School-Pillager

River Bend Academy

Strategies for Success Charter School

Studio Academy

Yankton Country School

Additional Information Needed. There is significant potential for omitted members and omitted retirement contributions for public pension plans with respect to charter schools. CFL appears to be in a position to be of considerable assistance in preventing retirement plan membership and contribution omissions, but the Commission has thus far received little information from CFL about its capabilities and its willingness to provide that assistance.

Additional Questions for CFL:
    1. CFL Notice of Right Step Academy Closure.

      2. How long in advance of Right Step Academy’s closure was CFL aware of its impending closure?

    2. CFL Assistance in Potential Right Step Academy Omitted Contributions.

      3. Prior to closure, what assistance did CFL provide to PERA to ensure that all Right Step Academy personnel were provided public retirement coverage?

    3. Ongoing Omitted Membership Identification Assistance.

      4. What information does CFL provide to potential charter schools on public retirement coverage for teachers and support personnel?

    4. Retirement Coverage Elements Required for Charter Authorization.

      5. What retirement coverage and retirement contribution payment elements are currently required by CFL in the charter document before the charter school is authorized?

    5. CFL Retirement Training Provided to Charter Schools.

      6. What training does CFL routinely provide to current and potential new charter schools on the retirement coverage requirements of Minnesota Statutes, Section 124D.10, Subdivision 22, on the retirement eligibility provisions of Minnesota Statutes, Sections 353.01, 54.05, and 354A.011, and on the retirement contribution payment provisions of Minnesota Statutes, Sections 353.27, 354.42, and 354A.12?

    6. Routine CFL Communications With Retirement Plans.

      7. What notification does CFL routinely provide to the public pension plans about CFL authorizations of charter applications, the actual establishment of charter schools, and the closure of charter schools?

    7. Retirement Component of CFL Annual Report Review.

What review does CFL routinely undertake of the payment contributions when considering annual reports?

  1. Process in Providing Retirement Coverage for New Charter Schools
  1. Duluth Teachers Retirement Fund Association (DTRFA)

Situation. For the 2001-2002 school year, one new charter school appears to have become operational in Duluth, the Harbor City International School. The creation of this school and its handling by DTRFA can expose shortcomings in the retirement coverage system.

Additional Information Needed. The creation of a new charter school will be indicative of the potential for omitted members and omitted contributions for DTRFA.

Additional Questions for DTRFA:
    1. Membership Process for New Charter Schools.

      2. What steps has DTRFA taken to ascertain which charter school teachers in the Harbor City International School in Duluth are eligible for DTRFA membership?

    2. Notification Process for New Charter Schools.

      3. When did DTRFA become notified of the creation of this charter school and from whom did that notification come?

    3. CFL Assistance in Process.

What role did the CFL play in assisting DTRFA in establishing retirement plan membership for teachers in this charter school?

  1. Minneapolis Teachers Retirement Fund Association (MTRFA)

Situation. For the 2001-2002 school year, one new charter school appears to have become operational in Minneapolis, the Friendship Academy of Fine Arts. The creation of this school and its handling by MTRFA can expose shortcomings in the retirement coverage system.

Additional Information Needed. The creation of a new charter school will be indicative of the potential for omitted members and omitted contributions for MTRFA.

Additional Questions for MTRFA:
    1. Membership Process for New Charter Schools.

      2. What steps has MTRFA taken to ascertain which charter school teachers in the Friendship Academy of Fine Arts in Minneapolis are eligible for MTRFA membership?

    2. Notification Process for New Charter Schools.

      3. When did MTRFA first become notified of the creation of this charter school and from whom did that notification come?

    3. CFL Assistance in Process.

What role did CFL play in assisting MTRFA in establishing retirement coverage for teachers in this charter school?

  1. Public Employees Retirement Association (PERA)

Situation. For the 2001-2002 school year, five new charter schools appear to have become operational. The new charter schools are:

Friendship Academy of Fine Arts, Minneapolis

Harbor City International School, Duluth

Minnesota Academy of Software Technology, St. Paul

Minnesota International Middle School, St. Paul

Twin Cities International Elementary School, St. Paul

Additional Information Needed. The creation of a new charter school will be indicative of the potential for omitted members and omitted contributions for PERA.

Additional Questions for PERA:
    1. Membership Process for New Charter Schools.

      2. What steps has PERA taken to ascertain what charter school support personnel in the Friendship Academy of Fine Arts in Minneapolis, the Harbor City International School in Duluth, the Minnesota Academy of Software Technology in St. Paul, the Minnesota International Middle School in St. Paul, and the Twin Cities International Elementary School in St. Paul are eligible for PERA membership?

    2. Notification Process for New Charter Schools.

      3. When did PERA first become notified of the creation of these five charter schools and from whom did that notification come?

    3. CFL Assistance in Process.

What role did CFL play in assisting PERA in establishing retirement coverage for support personnel in these charter schools?

  1. St. Paul Teachers Retirement Fund Association (StPTRFA)

Situation. For the 2001-2002 school year, three new charter schools appear to have become operational in St. Paul, which are:

Minnesota Academy of Software Technology

Minnesota International Middle School

Twin Cities International Elementary School

Additional Information Needed. The creation of a new charter school will be indicative of the potential for omitted members and omitted contributions for StPTRFA.

Additional Questions for StPTRFA:
    1. Membership Process for New Charter Schools.

      2. What steps has StPTRFA taken to ascertain which charter school teachers in the Minnesota Academy of Software Technology, the Minnesota International Middle School, and the Twin Cities International Elementary School are eligible for StPTRFA membership?

    2. Notification Process for New Charter Schools.

      3. When did StPTRFA first become notified of the creation of these charter schools?

    3. CFL Assistance in Process.

What role did CFL play in assisting StPTRFA in establishing retirement coverage for teachers in these charter schools?

Conclusion

Based on the testimony and additional materials received by the Commission during its third hearing on the topic and Commission discussions on an approach to viewing the unpaid closed charter school retirement contribution problem and on the mechanism for recovering those unpaid contributions during the hearing, the Commission staff will appropriately adapt the attached draft report and present the adapted document to the Commission Chair for approval and issuance as the Commission’s mandated report on the topic.