Education Week - April 6, 2022 - 13

How the War in Ukraine
Could Affect Teacher Pensions
K-12 pension funds are in the news as some states
move to divest from Russian assets-but the impact
on educators isn't yet clear
By Mark Lieberman
Ukraine is thousands of miles away from
the United States, but the deadly conflict that
has been unfolding there for the last month is
already hitting the wallets and pocketbooks of
America's K-12 schools and their employees.
Educators and parents are feeling pain at the
pump as the per-gallon cost of gas crosses the $5
mark in some places. Bus drivers who contract
with districts worry they'll have to leave the
business if fuel and maintenance cost spikes
persist. And a further surge in the already-high
inflation rate is raising the price of everything
from food and paper to building materials and
HVAC systems.
Teacher pensions are another area that's
feeling the war's financial ripple effects.
Specifically, numerous states including
Kentucky, Ohio, Pennsylvania, Rhode Island, and Missouri, and localities like Chicago and New York City,
have raised the possibility of divesting pension funds, including those set up for teachers and other school
employees, from Russian assets.
Educator pension funds have been woefully underfunded for much of the 21st century. Most educators
likely aren't aware that their future income sources are partially tied up in foreign money. Given that their
costs have swelled to roughly 10 percent of per-pupil K-12 spending in the United States in recent years,
these pension funds bear close watching.
Education Week called two pension experts-Leonard Gilroy, vice president of government reform at the
Reason Foundation, a libertarian think tank, and Josh McGee, a professor who serves as associate director
of the University of Arkansas' Office for Education Policy-to help explain what's going on, and how it
might affect educators in the short and long-term.
Why are states talking about divesting
of Russian assets?
Several states are taking aggressive financial
measures to distance themselves from companies
that enrich the Russian economy. They see pension
funds as a mechanism for achieving that goal.
This isn't the first time there's been discussion
of divesting pension funds of certain assets for
political reasons. Previous targets for divestment
pushes, McGee said, have been Iran, Israel,
gun manufacturers, and oil manufacturers. Just
this week, a group of middle-school students
in Oakland urged California's school pension
system to divest from fossil fuel companies.
How much of school pension funds
are tied up with Russia?
It's difficult to say for sure, because pension
funds are extremely complicated and often
inscrutable, even to the people in charge of
maintaining them, Gilroy said.
Experts say it's safe to assume Russian assets
make up a miniscule percentage of school pension
funds, though. Divesting of them likely wouldn't
cause a noticeable difference in the size of the
pension a teacher or school employee ends up
receiving upon retirement. Rhode Island, for
example, found that roughly .03 percent of its
pension fund was invested in Russian assets, and
in Pennsylvania, that figure was half of 1 percent.
Will states end up actually divesting
pension funds from Russian assets?
Some states, like New York and Oregon, have
already started.
But figuring out how to divest of Russian
assets isn't as simple as doing a simple " find
and replace " on a keyboard. McGee points
out that some assets might be ambiguous:
Does a company need to be located in Russia to
count as Russian? Should any company that's
even partially owned by Russian citizens be
disqualified? Who draws those lines?
Even after deciding the criteria, discerning
which ones meet those criteria won't be easy.
Some investments are multilayered, making
pulling apart Russian components from the rest
particularly challenging.
How else might the war in Ukraine
affect teacher pensions?
Broader economic instability wrought by
sustained disruption on the global stage could
cause pension funds' array of investments to
underperform their target returns.
McGee also worries about the potential
for what he calls " social investment, " using
pension funds as a tool to signal political
support or opposition, to become a broader
trend that's somewhat at odds with maximizing
investment returns. That trend could lead to
bigger costs for school districts and employees,
he said.
That increase would follow several decades
in which pension costs have exploded,
scrambling school budgets and prompting
allegations of mismanagement in several
states.
" Any time you're talking about investment
or divestment, it's all coming in a context of a
very complicated system that's having its own
struggles working, " Gilroy said.
EDUCATION WEEK | April 6, 2022 | www.edweek.org | 13
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