Switch new teachers to 401(k)s

The Detroit News is highlighting ideas from various groups to promote discussion on reform, restructuring government and the economy.

Switch new teachers to 401(k)s

Idea 19: Transition newly hired Michigan teachers to a defined contribution retirement system or 401(k).

Why: The Michigan Public School Employees' Retirement System provides pension and other post-employment benefits to more than 160,000 retirees and beneficiaries. The Michigan teacher retirement system has legacy costs that are unsustainable if the state wants to adequately fund the K-12 public school system in both the short and long term. A major portion (42 percent) of the increase in school aid funding during the past five years was used to pay for the increased retirement costs of public school retirees and beneficiaries. While the teacher retirement system is similar to other public-sector pension systems, this model is no longer sustainable. The private sector, including the Detroit 3 automakers, has aggressively moved toward 401(k)-type retirement systems. In 1997, all new state employees were enrolled in a defined contribution retirement system.

Benefit: Transitioning newly hired Michigan teachers to a defined contribution retirement system would provide a much-needed structural reform to the state budget and prevent long-term legacy costs that are unsustainable for the Michigan education system and state budget.

How: The Legislature would have to enact legislation to convert the current pension system to a defined contribution system.

Obstacle: The Michigan Education Association has opposed this proposal. There is an upfront cost to transitioning the teachers to a 401(k) system.

Source: Business Leaders for Michigan and

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