Column: Making teacher pensions work for the future
Michigan’s teachers and schools are struggling under the weight of a failing pension system, and bold action is required to help them get out from under it.
Twenty years ago, the government looked poised to do the right thing when state employees switched to a 401(k) instead of old-fashioned pensions, giving them better benefits and a new option to take their retirement with them to a new job. Unfortunately, politics prevailed and teachers were left behind in the old system. They have had to make due with its struggles and failures ever since.
That pension plan is now almost $30 billion in debt. Schools spend more than a third of their payroll just to prop it up. Frankly, the plan is little more than one big I.O.U., a shaky promise signed by long-gone Lansing politicians. No one feels secure in the long-term health of the system, and no one should be forced to rely on it to plan their future.
The current system also offers worse benefits than other retirement plans. First, teachers cannot save as much or as quickly as they can under a 401(k). Second, they must stay in the same job for at least 10 years, or else give up their benefits. And third, they cannot take their pension with them when they leave teaching. This forces many of them, including half of new hires, to start their retirement plan all over midstream at a new job.
Michigan’s historic failure to reform the pension system has been a terrible deal for the hard-working people who take care of and educate our children. It is well past time we fix that mistake and give teachers the benefits they deserve.
Legislation has been introduced this week in the state House and Senate to give teachers a better plan. This plan finally takes state government out of the pension business. It takes teacher retirement out of the hands of politicians, increases their benefits, and gives them more control over their own future. It gives every future school teacher their own modern 401(k) retirement plan.
This plan allows school employees to save more under the new plan, and new state funding for an employer match means a bigger retirement account that grows faster. After all, we should be rewarding people for planning ahead, not holding them back.
New school employees will also have a portable plan for the first time, a benefit millennials want. The simple truth is the younger generation today doesn’t want to stay in the same job or city for more than a decade to become vested in a pension plan. The old days of 40 years and a gold watch at the same job are long gone.
In fact, half of new teachers right now do not stay long enough in the same job to become vested in the pension program. When those teachers leave, they lose everything. Under our plan, they take it with them.
We know teachers who have already paid into the pension plan do not want to see their retirement changed. I don’t want to see that, either. That is why our plan does not affect any current teachers or retirees in any way.
The best way forward is clear. We must reform the school pension system to save our schools from a massive financial hole and provide our new teachers with a better, more competitive and modern plan. Twenty years ago, the state made a mistake and left our local teachers behind. Twenty years from now, what will people say about the decisions we make today?
Rep. Tom Leonard represents Michigan’s 93rd district and is Speaker of the House.