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AN IMPORTANT MESSAGE ABOUT THE IRS PROPOSED RULE ISSUE

February 10, 2012

Dear Charter School Leader:

In response to your dozens of calls and emails, I am writing with good news about a much-publicized issue regarding charter school teachers’ state retirement eligibility.

We spoke directly with Pamela Kinard, the lead IRS employee collecting and responding to the comments that are coming in. The IRS has spent the last 6 years preparing for the ADVANCED Notice of Proposed Rulemaking (ANPRM) on “Determination of Governmental Plan Status.”

Nothing in the regulations is directly aimed at charter schools. There is nothing that is becoming final this summer. In fact, because this is an ADVANCED NPRM, these are not even Proposed Regulations yet. They are an early draft of what is likely — in 1-2 years time — to be proposed by the IRS as proposed regulations in a Notice of Proposed Rule Making (NPRM) for additional further comment, hearings, and eventual publication in a final rule. It may be 2-3 or more years from now before a final set of regulations on this topic is finalized.

In the meantime, there will be multiple comment periods — like the one closing in now on June 18 — and multiple public hearings. The IRS has already loudly heard the concerns that there may be a charter school issue in these proposed regulations and reports that it was completely unanticipated. It is NOT true that charter schools will be automatically denied participation in state retirement plans in June and that it will be retroactive.

It is important to know that there is a current 5-factor test to determine whether an entity is eligible for being part of a government retirement plan. This ANPRM proposes for discussion — not for adoption — some changes to that five-factor test, modernizing it. It is YEARS away from final adoption. It is a tough test currently and likely would be a tough test in several years when the final regulations come out. That said, one of the factors currently in use is whether the state considers the participants in a retirement plan to be employees of the state — which is the case in the 42 states that require or permit charter teachers to participate in a state retirement plan. That would be strongly counted in charter schools’ favor, it would seem. The IRS is not proposing or thinking of proposing a blanket rule aimed at charter schools and denying them state retirement plan participation.

When it comes to the governmental regulations process, the very name “Advanced NPRM” is a tip off that nothing final or even close to final is being proposed. The rumor about retroactivity and a June implementation date is just that, and there is no credibility to the notion that a complicated multi-factor test that is intended to be applied case-by-case will be applied categorically for a specific class of entities (like charter schools).

We hope this helps you be able to allay concerns among your teachers and your colleagues in the charter movement so you can go back to the most important work at hand — education our kids.

Thank you for your concern. We will keep you informed as we learn additional information.

Best Regards,

Jeanne Allen, President
Charles Hokanson, Executive Vice President
Alison Consoletti, Vice President for Research