Pension Late Fees Hit Chicago Charters

More than $10 million owed to the city teachers' retirement fund is paid late, triggering at least $1.8 million in fines.

Investigation
Jared Rutecki

As part of its broad 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 still receive taxpayer funds 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 financial resources 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.

>> Read this story at the Sun-Times

Fund officials say that the charters have all eventually satisfied the $10 million in late payments, though it is possible that more money is owed but yet to be 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 such fines, although some charter operators have successfully appealed and others are still waiting for a determination. That latter group includes Noble, which has disputed 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 still 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 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.” 

 Chuck Burbridge
 Chuck Burbridge | Ashlee Rezin, Sun-Times

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 out certain positions such as substitute teachers or paraprofessionals through a third party, 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 in arrears.

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 grades Kindergarten through third, was late in remitting $126,700 in employee pension contributions between 2014 to 2016. The outstanding penalty for that tardiness has now hit $356,800, records show.

Those numbers were forcefully 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 currently reflect. In October, following 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 sizeable share of the overall amount. By law, an amount equivalent 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 $10.7 billion pension fund also receives revenue from CPS for what is considered the employer share of pension contributions. The 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 gave then-Chicago Mayor Richard M. Daley the power to divert for other uses the employer share of resources owed to the fund, something he did for most of the rest of his time in office. Near the end of Daley’s final term, state lawmakers gave Daley approval for another pension payment holiday that extended into the early years of his successor as mayor, Rahm Emanuel.

The diversions did serious financial harm to the pension fund, which currently pays retirement benefits to approximately 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 the extra money back.

About the Author
  • Katie Drews

    Katie Drews is a reporter with the Better Government Association's investigative staff. She is tasked with, among other things, investigating and exposing problems in municipal governments throughout Illinois.