Legislation would force teachers to pay to keep their pensions

Archive: Sunday

April 1, 2012

Legislation would force teachers to pay to keep their pensions

THE ASSOCIATED PRESS Associated Press Sun Apr 01, 2012, 07:14 AM EDT

MPSERS — LANSING (AP) — Most teachers and other public school employees could see more than 10 percent of their paychecks go to retirement costs next school year under legislation that would take some of the burden for retiree benefits off school districts' shoulders and hand the cost to workers.

Teachers unions and public retiree groups say it's just one more attempt by Republican lawmakers to shift the cost for retiree benefits to current and former teachers. They argue the state stopped prefunding retiree health care in the 1990s and now is taking money from individuals to make up for its mistake. Retiree health care benefits make up the bulk of the $45 million hole Michigan finds itself in for unfunded school employee liabilities.

Asking so much from teachers "is not very fair," Michigan Education Association spokesman Doug Pratt said.

GOP lawmakers "talk a lot about wanting to fix the problem. But this bill focuses way more on shifting costs onto employees and retirees than it does on fixing the problem."

Those guiding the measure through the Legislature say a quarter of school districts' budgets now go to cover pension costs, an amount that will climb 3 percentage points next school year if nothing is done.

Asking teachers and administrators to pay more toward their pensions will shift the larger contributions needed to dig out of the hole to individuals rather than school districts. As of a year and a half ago, the Michigan Public Schools Retirement System — orhad only enough money to cover 71 percent of future pension costs owed.

"If we do nothing, there could be a point in time when employees go to ask for their retirement check, and there's no money in the kitty," said Rep. Bill Rogers, who's helped craft the legislation. "The reality is, it has to be addressed."

If the change can keep districts from having to pay a greater proportion of their annual funding to the pension system, that leaves more money in the classroom," the Brighton Republican said.

As of last September, when the most recent fiscal year ended, MPSERS covered 192,435 retirees receiving monthly benefits and 236,660 active members, of which 114,680 are eligible to receive benefits now or in a few years, according to the state Office of Retirement Services.

The legislation Rogers and other Republicans propose would have most teachers hired before 1990 pay 5 percent of their salary toward their defined benefit pensions, while those hired after that would pay 8 percent. Currently those in the basic pension system pay nothing while those hired after 1989 pay 3 percent to 6.4 percent based on their salary. School employees could decline to pay the extra amount if they agreed to receive less retirement money. They also could freeze their pensions and move to a 401(k) style system.

Employees hired after July 1, 2010 are in a hybrid system blending defined benefit and defined contribution systems and would see no change.

The bill also would end retiree health care for those hired after July 1, instead giving them 2 percent of their pay they can invest to cover health costs in retirement. Most teachers would have to work longer — until age 60 — to qualify for retiree health care, although a phase-in would allow some long-time teachers to qualify before age 60. All retirees would have to pay 20 percent of their health care premiums starting July 1, up from about 10 percent now.

The nonpartisan Senate Fiscal Agency estimates the bill would wipe out $9 million of the unfunded future costs.

Still, it's a tough request for school employees to swallow coming on top of new laws that require them to pay 3 percent of their salary toward retiree health care and that force all public workers — including teachers — to pay around 20 percent of their health care premiums.

Many teachers complain they're already falling behind as the cost of living increases faster than their small or nonexistent raises. And retirees also are feeling the pinch, facing higher-than-expected health care premiums and payments on pension income that was exempt from state income taxes until this year.

Retired Leslie High School librarian Marie Charnley said she's adjusting to the changes, but the insistence that current teachers pay ever more toward their retirement benefits could eventually drive her daughter out of teaching first grade.

"It's quite a bit coming on the heels of no raises," Charnley said. "They're just chipping away at her."

The trend toward asking public workers to pay more toward their health and pension costs started with state workers late last year. Republican Gov. Rick Snyder signed legislation in December requiring state workers eligible for defined pension benefits — those hired before April 1, 1997 — to contribute 4 percent toward their annual pension costs if they wanted to stay in that plan rather than switching to a defined contribution plan.

The change has been challenged in court by a coalition of state labor unions, but Snyder said the state needs public employees — including teachers — to pay more if the retirement systems are to remain solvent.

"We need to get to a long-term model that really works well for all of us in terms of the people involved in the pension systems, our taxpayers, and so it's a balancing act. I appreciate the fact that they (teachers) would have some concerns," Snyder said. "I believe the Legislature has been working hard on coming up with a proposal, a package that can work well for the long-term. Because again, we need to think about today, but also our kids and the future."

Pratt said a better solution would be to make charter school employees and private-sector workers who now handle food, janitorial and busing services that school employees once did join MPSERS to boost the number of workers supporting the growing number of retirees. Those employees are now exempt from participation, but if they were added, school districts could shift 5 percent of their costs to individuals rather than just 3 percent, he said.

Teachers' unions have challenged the 3 percent fee for retiree health care in court, but the Court of Appeals hasn't issued a ruling in the case.

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AP-WF-03-31-12 1308GMT