McCollum seeks to change to how feds rate financial health of colleges

Bethel University
Bethel University in St. Paul.
Tim Post/MPR News

U.S. Rep. Betty McCollum, a Democrat who represents Minnesota's 4th District, has proposed language that would require the U.S. Dept. of Education to change how it accounts for college pensions. Her efforts come after complaints by Bethel University and other schools that the federal formula that determines schools' health is deeply flawed.

Bethel officials say the accounting formula incorrectly calculates the pension obligations of colleges that offer their employees defined-benefit pension plans. They say those calculations make universities such as Bethel appear financially weak when they're not.

Bethel is "being held to a standard that makes no sense at all," McCollum said.

An Education Department spokeswoman did not immediately return a call requesting comment Friday.

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But in a December 2013 letter to McCollum, a department official maintained that the calculations were in order.

Bethel officials say the school has long been financially healthy, and for years has scored well on the federal financial test of schools involved in federal financial aid programs.

They say that changed in the 2012 fiscal year, when the department modified its calculations.

In May 2013 the department notified Bethel it had flunked the financial test for the prior year. The department sanctioned the school, demanding a multimillion-dollar letter of credit.

Bethel officials appealed, saying the department was off in its calculations, and that the university had no financial problems.

Not only was the letter of credit too costly, they said, paying it would be an admission of guilt that would hurt Bethel's reputation.

Bethel officials said the department ignored their concerns, so they enlisted the help of McCollum, who met with officials from both the school and the department in July.

The department suspended the sanctions pending further review. In a December letter it notified Bethel that it was sticking to its formulas - but said it was dropping the sanctions against the school because it had passed that next year's test - the one for fiscal year 2013.

The fact that the school failed only one year illustrates the arbitrary nature of the federal standards, said Bethel consultant Kathleen Nelson, the school's former senior vice president for finance and administration.

At the heart of the dispute is how Bethel should account for its $40 million pension plan, Nelson said. The federal change, she said, forces Bethel to prove that it could pay out its pension in full to all employees at once if needed.

Bethel officials say the pension calculation is just one of several that go against generally accepted accounting principles.

"It's ridiculous," Nelson said. A pension "is a long-term obligation."

Nelson said that in the year Bethel had problems, interest rates were inflating the amount of pension obligation the school was carrying.

Those rates changed the next year, she said. Bethel also froze the pension and added another $2 million to $3 million to the fund, she said.

It passed the next test.

Betty McCollum
Rep. Betty McCollum, D-Minn, in her St. Paul office on Jan. 10, 2011.
Nikki Tundel/MPR News

Nelson said that didn't solve the matter, because the federal accounting remains flawed. She fears that changing interest rates for pensions in coming years could ding Bethel's financial performance again in the eyes of the federal officials.

"It's important to us to correct the issue for the record," she said, "and because we do have a pension plan for our employees ... this could be an ongoing issue for us."

McCollum said the department's handling of pensions punishes Bethel and other colleges for offering generous employee pension plans.

"In this day and age when we're asking individuals and we're trying to figure out how to have people be financially secure in their retirement," she said, "you would think the federal government would be celebrating plans like Bethel's."

McCollum has proposed language in a Congressional appropriations subcommittee report that would require the Education Department to change how it handles pensions.

Committee leaders must still approve the language, and it is not clear yet when they'll decide the matter. It could take several months before they reach a decision.

The National Association of Independent Colleges and Universities has written lawmakers to support McCollum's proposed changes.

It also asked legislators to demand that the department change how it treats college endowments, long-term debt and ongoing construction projects in the accounting of colleges' fiscal health.

Bethel officials have said the formula is also mistaken in the way it handles fixed assets, investment income and unrestricted revenue.

In a November 2012 report, the association said the assessment program needed an overhaul. Dozens of its member schools have reportedly failed the calculations.

It said the department has been unresponsive to its members concerns.