Teacher pensions still need reforming
Two years ago, the Michigan Legislature had the opportunity to turn around the state's fragile retirement system for public school employees. But lawmakers stopped short of making meaningful reform that would fix the system for good. A new push to revisit teacher pensions deserves attention.
The Legislature should have had the gumption to move all new teachers away from traditional pensions and into 401(k) style plans back in 2012. That is the best way to create a stable system decades into the future.
Instead, lawmakers settled on giving teachers a choice to move to a defined contribution plan — with a 3 percent match from the state — or stay with a defined benefit plan.
Not surprisingly, the majority of new teachers have chosen the more traditional pension plan. According to the state Office of Retirement Services, starting in 2013, new employees had the option to move to a defined contribution plan, but out of 25,200 new members in the Michigan Public School Employees Retirement System, only 4,900 chose that option.
In 2010, lawmakers attached a defined contribution element to the pension plan, but the so-called hybrid plan is still basically a pension.
Previously, legislators decided against closing pensions to new teachers, citing concerns with transition costs associated with moving from a pension system to a 401(k) system. But those costs are often overblown by policymakers and defenders of pensions, as experts like Andrew Biggs with the American Enterprise Institute have noted.
Michigan has already seen this play out at the state level. In 1997, the state closed its pension system for state employees, and that system didn't come crashing down under the weight of these transition costs.
And the savings from closing the state employee retiree system are real.
Some GOP lawmakers in the Senate had wanted schools to realize those savings as well, but their original plan was thwarted. So a group of senators introduced bills late last year that would place new teachers into defined-contribution plans and close the teacher pension plan.
These lawmakers, including Mark Jansen, R-Gaines Township, Patrick Colbeck, R-Canton, Bruce Caswell, R-Hillsdale, and Phil Pavlov, R-St. Clair, would like the Legislature to take the issue up during its lame-duck session.
Given the past difficulty of convincing even their Republican counterparts in the House, as well as reluctance from Gov. Rick Snyder, it seems unlikely these bills will gain momentum this time.
For Jansen, who is term-limited, this is personal. He has worked on reforming the teacher retirement system for years, and he doesn't want to leave office without giving true reform one last shot.
"I have a kind of moral obligation," Jansen says. He's spent time with school administrators around Michigan, speaking with them about their concerns over legacy costs.
If this legislation passes, the total savings wouldn't be realized for years, as current teachers move through the pension system. But it would ensure more stability down the road for schools and the state.
Jansen estimates that in 30 years, if the defined benefit plan remains open, unfunded liabilities could reach as much as $15 billion more than they would if the plan were closed.
The changes from 2012 helped ease the burden on schools, in part by capping the percent of payroll schools have to pay into the system.
But those costs will inevitably increase again if lawmakers don't close the pension system now.