Michigan’s pension system now devours 36 percent of school payroll costs, and the system is underfunded by $26.7 billion. Without addressing the pension shortfall now, retirement security will be at risk for all employees.
Michigan lawmakers briefly considered tackling school employee pension reform in their lame-duck session. It’s off the table for now, and while that was a relief to many teachers, the problems facing the system are real – and not going away. This must be a top legislative priority early next year.
Plenty of GOP lawmakers have already voiced their support for taking on in the next session the Michigan Public School Employee Retirement System, which is underfunded by $26.7 billion.
The pension system now devours 36 percent of school payroll costs. Teachers may fear not having a traditional pension, but the reality is that if left unaddressed the current trajectory will contribute to other negative impacts, such as less money for pay raises and other cuts to the classroom.
The state, at Gov. Rick Snyder’s request, has already stepped up what it’s paying into the MPSERS system, but even those additional funds haven’t much dented the unfunded liability.
And while there will be a new crop of representatives in January, enough of them are familiar with the pension shortfalls. Many senators are, too. Senate Education Chair Phil Pavlov, R-St. Clair Township, is one of them, and he could be a useful resource for less familiar colleagues.
The Mackinac Center for Public Policy has also taken the lead on teacher pensions, and has offered detailed reports and research to help lawmakers.
Part of the solution is fairly straightforward: move new teachers into a 401(k)-style defined contribution plan. This is what the state did for state employees in 1997, and that change has saved money. And the transition went smoothly, which should appease fears of how things would go for the school pensions.
Lawmakers have tried to tackle the teacher pension issue at several points in the last five years. The biggest push was in 2012, but the Legislature failed to pass meaningful reform. It fell way short of moving all new teachers into a defined-contribution plan, instead simply offering that as an option in addition to the traditional pension. Most new hires continue to opt for the pension. A 2010 reform created a hybrid plan that includes a defined-contribution element, but it’s still largely a pension.
House Speaker Kevin Cotter, R-Mount Pleasant, who is term limited, acknowledged that lame duck didn’t offer enough time to tackle the issue of retiree benefits, but he said lawmakers at least helped “shine a light” on the unfunded liabilities. Senate Majority Leader Arlan Meekhof, R-West Olive, agreed.
“We have an unsustainable product in front of us,” Meekhof has said.
That is also the conclusion of other leaders in the state. A report prepared by former U.S. Comptroller General David Walker and presented to the West Michigan Policy Forum in September estimated the state has $51.4 billion of unfunded retirement liabilities; it ranked Michigan in the country’s bottom 10 states for its “relative financial positions.”
At the event, Amway President Doug DeVos said attendees ranked restructuring government employees’ pension plans as the No. 1 policy priority in Michigan.
Lawmakers aren’t out to strip current teachers of their pensions, although it may be that they’ll have to contribute more to fund their own retirements. Rather, there’s a recognition that without addressing the pension shortfall now, retirement security will be at risk for all employees.
For their own self-interest, teachers should join the effort to find a reasonable answer.
— THE DETROIT NEWS