Fix teacher retirement crisis today
Here in Michigan — and in Detroit especially — we’re far too familiar with what happens when we leave retirees’ future in the hands of politicians. Underfunding. Benefit cuts. Bankruptcy. In the aftermath? Michigan taxpayers always get stuck paying for the politicians’ mess.
Well don’t look now, but the same warning signs the politicians ignored for years in the Motor City are on full display in the Michigan Public School Employees Retirement System.
The state legislature has a month and a half before the end of session, and the most important thing they can do with the time they’ve got left is to pass comprehensive pension reform for our teachers and public school retirees to avoid a Detroit-style crisis, and put new teachers’ retirement funds back where they belong, in teachers’ own hands.
Let’s address the elephant in the room right off the bat. Current teachers’ pensions are protected by the state constitution. Lansing can’t — and shouldn’t — touch them.
Giving brand new teachers a 401(k) benefit, though, means giving them control over their own retirement funds while fixing a broken system to protect retirees. New teachers’ retirement won’t be at risk of underfunding by the politicians in Lansing, and they won’t have to wait 10 years to become vested in their benefit. They start earning it immediately and can take it with them wherever their career leads them.
That kind of flexibility is coveted by millennials entering the workforce, who are much less likely to stay in a single place of employment for nearly as long as previous generations, and it gets government out of their business. They’re in control, and they deserve to be.
Without action, the entire retirement system is in serious jeopardy. There’s a crisis coming for Michigan’s educators, the kids they teach, and the parents who pay their salaries.
Michigan’s public teacher retirement system — commonly referred to by Lansing insiders as MPSERS, or “mipsers”—is so dramatically underfunded that teachers’ pensions are at risk, current efforts just to catch-up are taking more than $700 per pupil out of the classroom each year, and new teachers understandably worry that the their benefits may not be there when they retire.
The massive pension system is facing a staggering $26.7 billion unfunded liability. To fully fund the benefits Lansing has guaranteed our teachers, the fund needs $67.7 billion in the bank. There’s only $41 billion in the fund.
Just 16 years ago, the school pension system took up 12.2 percent of school payrolls, and most of that investment covered new pension credits earned in that year.
But under former Gov. Jennifer Granholm, Michigan’s population declined, teachers retired, benefits got more expensive and state government failed to budget responsibly for the needs of today’s retirees. As a result, today, the pension system now swallows up 36 percent of school districts’ payroll.
Annual required contributions to the pension system have increased to $2.2 billion a year, crowding out other school spending. In other words, the broken system is preventing billions a year from being spent on new staff, programs, and materials for our kids’ classrooms.
While these catch-up payments are important, they don’t address the root problem or stem the tide of new, unfunded liabilities being added to the system every year. It’s a little like shoveling the driveway in the middle of a snowstorm.
Detroit faced a pension funding crisis that made it impossible for the City to deliver even basic public services. It took slashed benefits, broken promises, and bankruptcy to fix the problem.
Lansing has to do better, and by putting new teachers’ retirement funds directly and immediately back into their own hands, it can.
Terri Reid is president of the Michigan Freedom Fund.