A group of five Colorado school districts has turned to the courts to fight a new policy that would allow substitute teachers they hire through outside staffing agencies to benefit from the state’s retirement system.
The policy, school districts say, could cost them millions of dollars worth of retirement contributions for substitutes and make the already difficult task of finding enough subs to cover classrooms even harder.
The school districts joined two staffing agencies, Kelly Services and ESS West, LLC, in filing a lawsuit against the Colorado Public Employees’ Retirement Association on June 27 in Denver District Court.
The lawsuit raises questions about the way that subs should be classified as employees and the kind of retirement benefits they are eligible to receive. Some Colorado school districts, including plaintiff Aurora Public Schools, have started working with outside staffing agencies in recent years to create a reliable pool of subs at a time it has become increasingly difficult for many districts to hire and retain a stable group of subs. The state has recognized those subs as employees of the staffing agencies that contract with districts, meaning the subs and agencies pay into social security.
PERA, however, wants all school employees who are critical to schools to be PERA members, including subs who come from outside staffing agencies. The retirement system is pushing to classify those subs as employees of school districts rather than as employees of outside staffing agencies. The new policy would force school districts to make retirement contributions to PERA for those subs.
“The Districts have not budgeted for such contributions, nor do they have the resources to effectively fill substitute positions without staffing agencies,” the lawsuit states.
Other district plaintiffs in the lawsuit are Adams County School District 14, Englewood Schools, Harrison School District 2 and Littleton Public Schools.
PERA spokesperson Patrick von Keyserling declined to comment on the lawsuit, citing pending litigation.
PERA on June 30, 2023, made all school districts aware that it would begin regarding subs as PERA members and that districts would have to begin making retirement contributions to PERA for subs starting July 1, 2024, according to the lawsuit.
Last fall, a number of school district officials complained about the policy change to the state legislature’s Pension Review Subcommittee. Committee members, however, declined to authorize a bill draft reversing the policy, saying they were worried it would lead to school districts turning to contract labor to avoid paying the benefits owed to public employees.
The lawsuit noted that the retirement association originally agreed to respect Aurora Public Schools’ decision to name subs as employees of Kelly Services after the district shifted from hiring its own subs to contracting with the staffing agency for the 2016-17 school year.
“However, PERA reserves the right to challenge APS’ classification of the substitute employees in the future,” the lawsuit states, citing a 2016 letter written to the district from Gregory Smith, PERA’s executive director at the time.
With help from Kelly Services, Aurora Public Schools now relies on about 700 subs per year to step into classrooms temporarily or to fill long-term vacancies, according to the lawsuit.
Working with an outside company has helped the district dramatically boost its success placing subs in classrooms, which can be particularly tough given how much school districts compete with each other and with other industries for hourly workers, Brett Johnson, chief financial officer for Aurora Public Schools, told The Colorado Sun.
The temporary and “transient” nature of subs further complicates districts’ ability to staff classrooms, Johnson said, as some subs want to work only a couple days a week or every other week while others fill in every day.
Should the new policy be adopted, Aurora Public Schools would likely have to return to directly hiring subs and appoint a full-time staff member for that job, which would set in motion a series of financial and operational hardships, he said.
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“A concern on our end is that in the likely event that our fill rates plummet again, that puts a lot of strain on school operations and ultimately kids,” said Johnson, who previously served on PERA’s board. “We may have to just decide to scrap third-party providers altogether and be upfront with our community and our teachers and our kids that teachers are going to have to do more and kids are going to have to expect disruptions in their learning.”
That might mean schools must combine classrooms for a day or ask teachers to skip their planning periods in order to cover a class, adding more demands to their already full workloads, Johnson said.
He estimates that making retirement contributions to PERA for subs could cost Aurora Public Schools between $3 million and $5 million in a single school year.
“We prefer to have a balanced budget obviously, so if there’s all of a sudden kind of a new price tag of several million dollars, we would have to find a reduction of several million dollars somewhere else,” Johnson said.
The district of about 5,500 full-time employees has tried to insulate classrooms from feeling the effects of cuts, he said. Last year, for instance, Aurora Public Schools slashed administration by $6.5 million.
“But at some point, cuts are deep enough they will eventually affect school operations,” Johnson said.
Questions around PERA’s authority and lack of transparency
Districts suing PERA are also raising concerns over what they see as a lack of transparency from the state retirement system in rolling out its new policy that categorizes subs as district employees and PERA members.
PERA notified school districts of its new policy in a June 30, 2023, letter.
According to the lawsuit, a letter sent to Aurora Public Schools stated that, “It is PERA’s position that regardless of whether APS pays its substitute employees directly, or utilizes a third party to place and/or pay substitute employees, these substitute employees are required to be PERA members.”
The retirement system emailed school districts in early October to double down on its stance that by the 2024-25 school year, all subs would be considered PERA members even if they were hired by a third-party company, the lawsuit states.
School districts wonder why PERA suddenly announced the change in a letter without giving notice or allowing public comment on the new rule.
The plaintiffs say PERA’s policy is “an egregious overreach” of the power the state gives the retirement system to designate members. They argue PERA has the authority to decide whether certain public employees are PERA members, but cannot decide that private employees are members.
“PERA is overstepping,” Harrison School District 2 Superintendent Wendy Birhanzel wrote in an email to The Colorado Sun. “These substitutes are not employees of the school district. They are privately employed by a staffing agency and should not be paying into PERA.”
The Colorado Springs school district contracts with ESS West, LLC, to put between 120 and 150 subs in front of students in a school year, Birhanzel said.
Like Aurora Public Schools, Harrison School District 2 has seen significant improvement in deploying subs to classes using a third-party company. The new policy would also force Harrison School District 2 to once again handle the hiring process of subs, which Birhanzel worries would leave the district scrambling to cover all classrooms.
Johnson, of Aurora Public Schools, also questions why PERA is fixated on converting subs hired through outside companies to PERA members when other government agencies work with employees hired by private vendors, such as trash collectors and construction workers.
“The idea that PERA would suggest that we need to think first about PERA membership, second about our kids and our operations of our schools just felt a little odd,” he said. “It felt like we were being oddly singled out.”
During a hearing this month, the court ruled districts have 45 days from July 1 until they must begin making PERA contributions for subs employed through third-party companies. Within that time, they can also explore potential solutions without involving the legal system.
Johnson anticipates that this legal battle could be the start of a broader fight over how other school district employees hired through vendors are classified, such as staff helping students with special needs who have an individualized education program to accommodate their learning needs. He said that PERA has been trying to understand the breadth of positions school districts fill using outside staffing agencies, including through a survey issued last fall.
“If we can’t have the ability to place positions that no one applies for through a third-party basis, we are breaking federal law or not honoring IEP contracts with kids,” Johnson said, “and so we’re highly concerned about the direction that this might go.”
Colorado Sun staff writer Brian Eason contributed to this report.