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 from 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 from 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 from 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 from 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.
“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.
A version of this article appeared in the April 06, 2022 edition of Education Week as How the War in Ukraine Could Affect Teacher Pensions