It’s budget season in Lansing. Politicians are setting priorities for our state and our tax dollars. Most citizens would put fixing our crumbling roads at the top of their wish list. Recently, the Senate came just one vote short of spending an extra half-billion dollars on road repairs.
House and Senate Republican leaders have a different priority. Instead of fixing our roads, they’re more interested in destroying pensions.
Their plan — to close down the pension system for new school employees and force them into a defined contribution plan — would have disastrous effects on educators, students and the state’s fiscal health.
An attempt to rush similar legislation through in the lame-duck session last December failed after state budget experts explained the exorbitant costs of such a scheme. The Senate Fiscal Agency estimated the cost in the first year alone at over $500 million and as much as $3.6 billion over the first 5 years — versus sticking with changes made in 2012 to stabilize the system over time.
Those changes placed new hires into a “hybrid” system combining elements of defined benefit pensions and 401(k)-style defined contribution plans. State budget experts say the hybrid system is fully funded and paying down long-term debt.
According to a recent report by the Anderson Economic Group, “Putting all new employees into a defined contribution plan would not reduce the unfunded liability, and would result in significant costs for school districts.”
Another study by Great Lakes Economic Consulting (conducted by former state treasurer, Robert Kleine, and former House Fiscal Agency Director, Mitch Bean), found costs to taxpayers would increase by $20 billion over 30 years if Republican leaders get their way. The state would have to spend an additional $680 million in 2018, $1.1 billion in 2019, another $1.1 billion in 2020, and on and on.
Even the promised savings in the long run are illusory, according to the National Institute of Retirement Security. In West Virginia, a similar move proved so costly that state officials reversed course 15 years later.
Legislative leaders claim these changes only affect new hires. However, according to the Institute, states that close their defined benefit plans weaken the security and stability of those plans for current and retired school employees, putting their retirement security at risk.
Study after study begs the question: Why spend billions of dollars to destabilize retirement security for the school employees who teach, feed, transport, and care for Michigan students?
Eliminating pensions for new educators is bad for students and the quality of their education. Declining pay, eroding benefits, and attacks on the profession are driving the best and brightest young people away from classroom careers.
The Michigan Department of Education recently released data showing average teacher salaries have declined for the fifth straight year. Enrollment in Michigan colleges of education is down 40 percent, while new and mid-career teachers are leaving the profession in record numbers. Districts across the state are struggling to fill teaching positions in math, science, languages, and special education.
Eliminating pensions for new hires — and threatening the retirement security of current employees — will accelerate the loss of outstanding educators and potential educators. Students will suffer the consequences.
Michigan has many needs that should be addressed in this budget. At a time when our roads have deteriorated and the Flint water crisis demands continued relief, spending hundreds of millions per year to gut educator retirement is neither a priority nor a sound idea. The bottom line: Closing off new employees to a defined benefit system would cost billions, leave dedicated educators without a secure retirement, and worsen the growing teacher shortage.
Steven Cook is president of the Michigan Education Association.
Labor Voices columns are written on a rotating basis by United Auto Workers President Dennis Williams, Teamsters President James Hoffa, Michigan AFL-CIO President Ron Bieber and Michigan Education Association President Steven Cook.