May 11, 2007 at 1:00 am

Michigan's educational time bomb

The $1,470-an-hour loophole: Retirees work for 13 days to earn lifetime health care

REMUS -- Paulette Strong loved the 102 hours she worked as a school aide last year. She enjoyed being around children. The staff "treated her like a queen."

And the benefits were pretty good, too.

For those 102 hours of work, Strong will get most of her medical bills paid by taxpayers for the rest of her life.

A loophole in Michigan's school retirement policy allows the 60-year-old grandmother from Remus and hundreds of former school employees like her to earn lifetime health care at deeply discounted rates -- a perk worth an estimated $150,000 per retiree -- for returning to work for the equivalent of 13 days.

Strong, a former bus driver who left the school district before qualifying for retiree health care, returned as a school aide earning $6.50 an hour. But because those hours earned her inexpensive lifetime dental, vision and medical care, her effective salary was closer to $1,470 an hour.

"I've heard some jaw-dropping things before, but that's the (worst)," said Ken Braun, policy analyst with the Mackinac Center for Public Policy, a conservative think tank. "That's egregious and it should have been addressed decades ago."

By the time the mid-Michigan grandmother reaches 80, Michigan schools likely will pay bills for her medical, dental and vision care equivalent to the price of two new school buses -- bills that would have been covered by her husband's health insurance if she hadn't returned to work in the schools for a brief stint. She is one of hundreds of school retirees getting health care through the practice, costing taxpayers an estimated $2 million each year.

Few blame Strong for taking advantage of the hole in the system -- she didn't even know it existed until a state public school employee retirement counselor explained it to her. But her case is a glaring example of how educators, unions and, in some cases, state officials, use weaknesses in the law to increase benefits for retirees, which increases the financial burden on public schools.

Retirement costs are strangling Michigan schools, which now pay $1,015 per student per year for retirees' pensions and health care bills. That figure is expected to skyrocket in coming years, threatening the state's already-strapped education system.

The financial crisis is worsened by poorly written policies that have allowed thousands to receive benefits who do not qualify under the spirit of the law, such as the one that allowed Strong to qualify for lifetime health care.

Here's how it works:

Michigan public school employees qualify for a pension in most cases after 10 years of service. Those who qualify for a pension receive lifetime health insurance only if they retire from the public schools. Workers can retire after 30 years of service or when they reach age 60.

But school employees figured out that if they returned to work at age 60, they could "retire" from the schools and qualify for lifetime health care. To qualify in the retirement system as having worked at age 60, employees need to log one-tenth of an annual work schedule, or 102 hours.

Any job in the schools qualifies -- an employee can return as a school aide, bus driver, crossing guard or cafeteria worker -- as long as the hours add up.

Retirees younger than 65 pay $97 a month out of their pensions for dental, vision and medical coverage -- the state pays $586. Retirees 65 and older get free health care, which serves as a supplement to Medicare.

That insurance, comparable to the coverage automakers provide for retirees, offers some of the best health benefits in the state, according to Rick Murdock of Michigan Association of Health Plans.

The state Office of Retirement Services, which manages the school retirement fund as well as retirement funds for other public employee groups, had never calculated how many school retirees had qualified for health care benefits by coming back to work for 102 hours.

At the request of The Detroit News, the ORS searched its database and found 30 retirees who qualified for health care through the loophole in 2006. Their medical bills totaled $268,558 during their first year in the retirement system.

The ORS declined to provide similar numbers for previous years. But if 2006 was representative of past years' classes of retirees, about 450 retirees and beneficiaries are getting health care through the loophole, at a cost of about $2 million a year.

Allan Short, director of government affairs at the Michigan Education Association, the powerful state teachers union, shrugs off the impact of the loophole, saying the medical bills of the retirees qualifying through the loophole "wouldn't make a dent" in the retirement fund. "Very few people use it," Short said. "Who's going to want to go back to work for (13) days?"

The number of people isn't the issue for former state treasurer Doug Roberts, now director of the Institute for Public Policy and Social Research at Michigan State University. "Isn't it just wrong?" Roberts asked. "It's a little like saying, only a few people are ripping you off, so it's OK."

Over time, the bills add up. ORS data indicates that in today's dollars, school retirees will cost taxpayers almost $150,000 between the ages of 60 and 80. If 450 people are getting free health care through the loophole, they'll likely cost the schools $40 million over their lifetimes in today's dollars. That's enough to build four elementary schools.

Strong was introduced to the rule in 2005 when she called the Office of Retirement Services for help filling out paperwork to get her pension. She'd worked as a special education bus driver for 22 years before leaving the Maple Valley Schools in 1997.

Strong inquired about the cost of purchasing vision and dental insurance through the system.

"The counselor told me that if I could work 102 hours, I could qualify for dental, vision and health insurance," Strong said. "I was shocked. I said, 'For nothing?' And he said, 'That's right.' "

The counselor went on to say that Strong's husband could be covered under the plan, too, for $23 a month for a plan excluding prescription drugs.

Strong thought it sounded like a great deal, but doubted her chances of finding a school district willing to hire her for 102 hours. "I'd been gone for 10 years," she said. "I used to be a bus driver. Who would hire me?

But she quickly discovered that local school districts were familiar with the loophole and were happy to help. Beal City Public Schools hired her as a school aide.

"They said, 'Don't worry, we'll find a way to get your 102 hours,' " Strong said.

Strong didn't even ask how much she was going to get paid. She wasn't there for the money. "I'd pass a teacher in the hall and they'd say, 'How many hours do you have? You're going to get it!' " Strong recalled.

Strong and her husband delayed their departure to Arizona, where they spend each winter, until she completed her 102 hours on Dec. 19, 2005.

"The counselor told me to get it (the benefit) this year (2005)," Strong said, "because it may not be available next year."

The state's retirement counselor, in effect, cost taxpayers an estimated $150,000 by explaining how to secure lifetime health coverage.

The Office of Retirement Services defended the counselor's actions. "Integrity is one of our core values in state government," said Edward Woods III, director of communications for the Michigan Department of Management and Budget, which oversees the retirement office. "If a customer asks a question, we will reply honestly and truthfully.

"However, if someone feels there is a need to change the policy, we encourage them to contact their state legislators," Woods said.

Even the MEA concedes the rule used by its members is indefensible.

"I'll admit it's an unfair provision," Short said. "It could be dropped."

Yet the Michigan Legislature has not taken action. Sen. Wayne Kuipers, R-Holland, chairman of the Senate Education Committee, believes few legislators knew about the issue and that the $2 million a year it costs schools isn't enough to draw attention.

"It's not a lot of money, but it's the principle at this point," Kuipers said. "It's not right, it's not what was intended, and we should take a look at it."

You can reach Ron French at (313) 222-2175 or rfrench@detnews.com">rfrench@detnews.com.

Retirement 'rithmetic

30 retirees qualified for lifetime health care by going back to work for 13 days in 2006. Factor in the number of retirees who likely qualified for health care the same way in prior years, and the cost* reaches: $40M, enough to build 4 elementary schools
*Detroit News estimate

Former bus driver Paulette Strong returned to public schools as an aide ... (Dale G. Young / The Detroit News)
Lynda O'Donnell teaches kindergarten class at Jane Addams Elementary in ... (Brandy Baker / The Detroit News)