Teachers and their pensions have once again become the political football in the middle of state budget negotiations.
Republican lawmakers are trying again to get rid of the pension system and force new teachers into a 401(k) type of retirement plan. Gov. Rick Snyder has said he thinks a hybrid system adopted five years ago is working. And Democrats want to make sure that teacher benefits are protected and are generous enough to keep attracting young people to the teaching profession.
Left to ponder how the ongoing political debate will impact their lives are the teachers, who say they are counting on the pensions to help cushion their retirement.
Robin Winchester, a speech pathologist at Randall Elementary School in the Taylor School District, is worried about the current debate. She has been in the profession for nearly 26 years and is in the pension system.
“It seems like if the new teachers are not paying into the pension system. As years go on there will be less and less money to support payments out to the people who are retiring,” Winchester said, noting she may have to work longer than anticipated to make up for potential shortfalls in pension funds.
If lawmakers succeed in their plans to fundamentally change retirement benefits for teachers, “I would feel less guaranteed to have a pension payment. I’ve counted on that,” she said.
Yes, it's complicated
The Michigan Public School Employee Retirement System — or MPSERS — is a complicated issue. There’s no argument that it is a huge liability for the state and is now pegged at $29.1 billion in debt. But that number has been steadily going down after Snyder proposed, and the Legislature passed, a revision to the system five years ago that requires new teachers to contribute more to their own retirement plan.
Teachers have a choice: The hybrid plan combines a traditional pension plan with a tax-deferred investment account, or teachers can pick an option that is just like a 401(k).
Most new school employees choose the hybrid plan, said Doug Pratt, spokesman for the Michigan Education Association. And it is fully funded with no debt.
It doesn’t compare to the traditional pension plan, he said, but compared to a 401(k)-type plan, it’s “the better long-term plan for retirement,” Pratt said.
In addition, the state has been adding roughly $1 billion a year from the state budget to MPSERS to pay down the debt, resulting in it being whittled from $45 billion in 2012. Snyder often has said that the best time to be governor of Michigan will be in 2038 because that's when the debt will be fully paid down if current practice continues.
But the debt is still a drag on the budget and Republicans want teachers’ retirement plans to fall in line with the rest of state government, which switched from a defined benefit to a defined-contribution plan in 1997.
“It’s a significant debt issue for the state, and if we’re going to stop digging the hole, we have to look at it,” said Senate Majority Leader Arlan Meekhof, R-West Olive, adding that a defined-contribution plan “is a more modern, portable thing for millennials who want to work for the state.”
Sen. David Hildenbrand, R-Lowell, said pension systems “have bankrupted large cities like Detroit and large employers like General Motors. I think they’re dinosaurs and we need to move to a more modern retirement system.”
Speaker of the House Tom Leonard, R-DeWitt, and Meekhof said last week that fixing the “broken teacher retirement system” is their top priority.
“If we could lower those pension costs, we could get more money into the classroom,” Leonard said.
As a result, as the House and Senate passed their versions of the 2017-18 budget, both chambers took a machete to Snyder’s proposal. The Senate passed budgets that are $542 million below Snyder’s fiscal plan, while the House passed budgets that are $283 million less than Snyder.
Shifting those savings into the MPSERS debt will be the subject of intense negotiation as the final touches are put on the budget in the coming weeks.
"The governor is open to reviewing legislative proposals and budgetary impacts" of MPSERS proposals, said Anna Heaton, spokeswoman for Snyder. "But he has yet to receive those."
Fundamentally changing the teacher retirement system is something the Legislature has tried before. In November, Republicans in the Senate tried to pass a plan to ban new teachers from the MPSERS system and put them into a 401(k) plan, but the transition costs to the plan — estimated by the administration and Senate Fiscal Agency at $2.1 billion to $4.7 billion over five years — delayed any final action on the plan.
The transition costs would be what the state and school districts would have to contribute into the MPSERS system to meet retirement obligations to teachers in the plan — at the same time that the system is losing money from contributions that new teachers are no longer making into the system because they've been shifted to a 401(k) plan.
But Meekhof said he's seen different, less costly numbers on the transition costs, although he didn't reveal what the numbers were or where they came from, and wants the issue to be brought up again as final budget negotiations heat up, noting, “We wouldn’t work this hard to save money on the side if we didn’t think we were going to do it with this budget.”
There is likely to be strong opposition from unions representing teachers and Democratic lawmakers.
Doug Pratt, a spokesman for the Michigan Education Association, said the current system is working and the changes being discussed will be too costly, citing a report released last week from the East Lansing-based Anderson Economic Group that puts the costs to schools in the range of $223 million to $813 million a year through 2048.
Closing the pension system to new teachers would make the teaching profession less attractive for new teachers, he said. That would be a challenge in a state that has seen steep declines in the number of people entering teacher preparation programs — a problem that has led to shortages in some critical subjects.
“If you continue to attack the livelihood of school employees, it’s only going to exacerbate the existing teacher shortage,” Pratt said. “In some cases, it will be this thing that chases people out of the profession entirely.”
While Democratic lawmakers want to salvage the pension system for teachers, they also think the money Republicans are setting aside to pay down the MPSERS debt could be spent on things more important to Michigan residents. Sen. Curtis Hertel, D-East Lansing, offered an amendment to the budget last week that would have put the $542 million set aside by Republicans toward fixing the roads. The amendment failed on a 19-18 vote.
“As a Lions fan, I’m used to hearing just wait until next year. And that’s what people are hearing from their senators that we should just wait until next year to get better roads. But every year we don’t invest, the roads are going to get worse,” Hertel said.
As for the changes to MPSERS, he said the issue is just a continuation of Republicans devaluing teachers.
“We switched to the hybrid plan and it’s working,” Hertel said. “We’ve de-professionalized the teaching profession so much that it’s really hard to get teachers right now. So to make any further cuts to benefits makes no sense to me.”
No bills have been introduced yet this year on the MPSERS reform, but the Legislature still has six weeks scheduled until it breaks for the summer.