Michigan House chairman seeks to accelerate state payments to teacher retirement system

Beth LeBlanc
The Detroit News

Lansing — An influential House Republican committee chairman is pushing a bill that would increase how much cash the state puts into the teacher retirement system by lowering the rate it expects teachers' pay to grow across the state. 

Rep. Thomas Albert’s legislation would decrease the pension and retiree health care payroll growth assumption rate — the expected salary growth rate for active teachers contributing to the retirement system — from 3.5% to 2.25% for next fiscal year.

The proposal is opposed by Democratic Gov. Gretchen Whitmer, who said the decreased payroll assumption rate would put too much pressure on the state’s School Aid Fund, which would kick in the extra money required by a new rate. She has proposed a smaller decrease in the rate, lowering it from 3.5% to 3%. 

Michigan State Capitol at night in Lansing on January 5, 2021.

Albert, R-Lowell, is chairman of House Appropriations, the committee that discussed the bill on Wednesday.

Whitmer's proposed decrease would require an extra $106 million be pulled from the School Aid Fund and deposited into the teacher retirement fund. Albert's proposed 2.25% rate would kick in another $160 million to $170 million, bringing the total additional funding prompted by the rate decrease this year to between $266 million and $276 million. The total $33.8 billion teacher pension debt isn't expected to be paid in full until 2038.

"These proposed changes don’t directly affect teachers or anyone individually," said Craig Thiel, research director for the Citizens Research Council of Michigan. "But, in an indirect sense, it definitely requires more money to be put in the system, which means less money available to schools” in the School Aid Fund.

Under a 2018 law, the payroll growth assumption rate is supposed to decrease by five-tenths of a percentage point a year starting in fiscal year 2022 until it reaches zero by fiscal year 2027-28, leveling off state contributions at that time.

Albert has argued the state retirement board set the rate artificially high in 2018 at 3.5%. The Michigan Public School Employees' Retirement System board recommended at that time that the rate should be 2.75%, Albert said.

“There is no financial justification for raising the payroll growth assumption,” Albert said Wednesday. “For decades, the payroll statewide has been in decline.”

Albert’s plan would move up the timeline for the state to reach a level dollar amortization to fiscal year 2026-27 instead of the current deadline of fiscal year 2027-28. 

Whitmer's office said Albert's proposal plays a "shell game" with education money "that would ultimately take money away from schools at a time when they need every penny.”

“The Whitmer administration has introduced a real plan in the FY2022 budget that implements the payroll growth assumption change as originally negotiated, which will balance both the health of Michigan’s retirement savings system for educators and available school aid resources for our children’s future," Whitmer spokesman Bobby Leddy said.

Albert said the state has about $900 million on the balance sheet to fund the increased payment in the coming fiscal year. The governor's "unfair and unjust" plan "would ask our children and grandchildren to pay off bills we accrue today," he said.

“If you keep it artificially high, it keeps this year’s costs low,” Albert said. “But what happens there, for anyone who understands debt structure, all it does is pushes those costs to the end of the debt curve.”

The state has been contributing more than $1 billion to the state teacher pension fund since 2012, under Republican former Gov. Rick Snyder, according to a 2019 report from the Citizens Research Council. 

Michigan lawmakers reformed the teacher pension system under Snyder to curb debt growth and require school districts to pay a fixed rate — or what is called a level dollar amortization. When school districts hit that fixed rate, the additional money is paid by the state.

During that time, the state also shifted new teacher hires to a 401(k) retirement saving system to stop the accumulation of debt on pensions. 

Snyder, Albert said, was more aggressive than any other governor before him — Republican or Democrat — about stabilizing the teacher retirement fund and helping the better secure pension payments.

Earlier this month, Thiele and James Hohman of the Mackinac Center for Public Policy urged lawmakers to make a higher one-time lump sum payment into the teacher retirement system, arguing the state could use some of its $3.7 billion surplus from the past fiscal year. 

With about 7% interest, the teacher pension debt is some of the most expensive the state has, Thiele and Hohman said in an op-ed for The Detroit News. 

"A lot has been done to shore up this pension fund, but there’s still work to do," Thiel said Thursday.

The Michigan Education Association does not have a position on the legislation yet, said David Crim, a spokesman for the state's largest teachers’ union. 

“We’re going to keep our eye on the bill,” Crim said. “Our main goal is to make sure that the retiree system and the benefits they provide educators are secure.”