Ukraine is thousands of miles from the United States, but the deadly month-long conflict there is already affecting the wallets and wallets of US K-12 schools and their employees.
Educators and parents are feeling pain at the pumps as the cost of gas per gallon crosses the $5 mark in some places. Bus drivers who contract with the districts fear that they will have to leave the company if the spikes in fuel and maintenance costs persist. And a further push in the already high rate of inflation is driving up the price of everything from food and paper to building materials and HVAC systems.
Teachers’ pensions are another area that is feeling the financial repercussions of the war. Specifically, many states, including Kentucky, Ohio, Pennsylvania, Rhode Island and Missouri, as well as places like Chicago and New York, have discussed the possibility of divesting pension funds, including those set up for teachers and other school employees, Russian assets.
Educators’ pension funds have been woefully underfunded for much of the 21st century. Most educators are probably unaware that their future sources of income are partially tied to foreign currencies. Given that their costs have ballooned to about 10% of spending per U.S. K-12 student in recent years, these pension funds are worth watching closely.
Education Week called on two retirement experts — Leonard Gilroy, vice president of government reform at the Reason Foundation, a libertarian think tank, and Josh McGee, a professor who is associate director of the Office of University of Arkansas Education Policy – to help explain what is happening and how it might affect educators in the short and long term.
Why are states talking about getting rid of Russian assets?
Several states are taking aggressive financial steps to distance themselves from companies that enrich the Russian economy. They see pension funds as a mechanism to achieve this goal.
This is not the first time that there has been talk of divesting pension funds of certain assets for political reasons. Previous targets of divestment efforts, McGee said, have been Iran, Israel, gunmakers and oil makers. Just this week, a group of Oakland college students urged California’s school pension system to divest from fossil fuel companies.
How many school pension funds are linked to Russia?
It’s hard to say for sure, because pension funds are extremely complicated and often impenetrable, even for the people charged with managing them, Gilroy said.
Experts say it’s safe to assume that Russian assets make up a tiny percentage of schools’ pension funds. Parting with it probably wouldn’t make a noticeable difference to the amount of pension a teacher or school employee ends up receiving upon retirement. Rhode Island, for example, found that about 0.03% of its pension fund was invested in Russian assets, and in Pennsylvania that figure was 0.5%.
Will states end up divesting pension funds from Russian assets?
Some states, such as New York and Oregonhave already started.
But figuring out how to divest Russian assets isn’t as easy as doing a simple “find and replace” on a keyboard. McGee points out that some assets can be ambiguous: does a company have to be located in Russia to be considered Russian? Should any business even partially owned by Russian citizens be disqualified? Who draws these lines?
Even after deciding on the criteria, discerning those who meet those criteria will not be easy. Some investments are multi-layered, which makes it particularly difficult to separate Russian components from others.
If not, how could the war in Ukraine affect teachers’ pensions?
Broader economic instability caused by sustained disruptions on the global stage could cause the range of pension fund investments to underperform target returns.
McGee also worries about the potential for what he calls “social investing,” using pension funds as a tool to signal political support or opposition, to become a broader trend that is somewhat at odds with the maximizing investment returns. This trend could lead to higher costs for school districts and employees, he said.
This increase would follow several decades during which the costs of pensions explodedscramble school budgets and sparking allegations of mismanagement in several States.
“Any time you talk about investing or divestment, it’s all happening in the context of a very complicated system that has its own difficulties in working,” Gilroy said.