Michigan Bill Shows Trend Effecting Retirees
By Lori Higgins, Detroit Free Press |
On Wednesday, the state
-- Database: How much school districts could save if their retirement costs were lowered
-- How much would retirement bill affect
Supporters say the bill, already approved by the House by a 57-47 vote largely along party lines, would help address a
The bill is hotly opposed by groups representing current and retired school employees.
"There has to be some middle ground," said
But state Sen.
"Their benefits are threatened by the amount of unfunded liability that is present within the system," said Kahn, the lead sponsor of the bill.Democrats in the
"What's in front of us right now is still just another blatant attack on teachers," said
Part of a trend across country
Most of the employees covered by the system work in K-12 schools, though it also covers some university, community college and local library employees.
The efforts in
"Everyone is trying to find their own way of reducing the overall costs," said
Some say the changes would bring what has been a generous benefit more in line with changes in the private sector, where many employers also have reduced benefits.
The percentage of payroll dollars going to pay for retirement costs has skyrocketed from 12.99% in the 2003-04 school year to 24.46% in 2011-12. That number is expected to rise to 27% this fiscal year, and an estimated 31% and 35% in subsequent years.
"Districts just can't afford it," said
The savings won't be a windfall for districts, but they will help. "One of the things that we would do is bank a substantial amount of that savings," said
School employees have traditionally had a generous retirement package with a pension that could pay a retired employee who made a salary of
Under the bill, current employees would either pay more to maintain their pension benefits, see reduced benefits or have their pensions frozen and move to a 401(k) plan. New employees would have the option of either a hybrid plan that combines a traditional pension with a 401(k) or just a 401(k). Health insurance for new hires would be eliminated, but employers would contribute matching funds to the 401(k).
Pensions for people who've already retired wouldn't be affected. However, retirees would be required to pay 20% for health insurance premiums if they're not receiving
The state would set aside money each year to fund future health care costs, rather than the current practice of covering the costs as they come. And the percentage of a district's payroll that would go toward retirement costs would be capped at 24.46% for this fiscal year. That would mean a savings of
"That would be significant," said
STATE FACING TOUGH CHOICES
Few dispute the need for reform. State Budget Director
"It's an unstable system and we're trying to bring some stability to it," Nixon said.
But it may mean some difficult times ahead for some employees.
"I've barely hung on to it the last year," Aldecoa said.
Davis said she might have to take on additional work, and luxuries -- including an occasional movie with her grandchildren -- might be out.
She is like many others who feel it's unfair for the state to change the rules for those who've already retired.
"You do what you're supposed to do, you take care of business, and you should be able to live comfortably throughout retirement," Davis said.
At hearings this spring, lawmakers heard from many who said the changes would force some current teachers to take on second jobs and would particularly hurt people who had lower-paid support jobs and draw smaller pensions.
"It's just another way to ... shift costs onto the backs of employees and force them to solve a problem they didn't cause," said
He and others lay some of the blame for the current state of the system on decisions made in the 1990s by elected leaders to stop pre-funding health care and to shift most of the retirement costs onto school districts.
COMPLEX SET OF FACTORS IN PLAY
There are numerous other problems. The number of current employees paying into the system has dwindled as statewide enrollment declines have forced layoffs, more districts privatize services and more charter schools open. Few charter operators or private companies running services such as busing opt to be part of the retirement system.
Meanwhile, the state's aging population, coupled with incentives that have enticed school employees to retire, is driving up the cost of retiree health care. The system also has lost "huge amounts of money" because of recent stock market losses, Nixon said.
The impact on districts has been severe. In
And while retirement costs have risen steadily, per-pupil grants from the state have stagnated, which makes the retirement costs even more burdensome.
"We're really in a pinch," Wiseman, from the
The savings expected in the current fiscal year would be welcome, but school administrators are more guarded about a provision in the bill that would change the way the state determines how much school districts pay for retirement. It's now calculated based on a percentage of payroll costs; the bill would have it be calculated based on a percentage of a school district's current operating expenditures.
Whether or not that's a fair way of spreading the costs is open to debate, Martell said.
"It's a controversial piece of the bill. There are some districts that would just as soon not see that happen. But others think it's a good idea," Martell said.
One concern, raised by some school administrators and union groups, is the impact the retirement changes would have on recruiting and maintaining employees.
Martell said the most sought-after teachers -- those teaching key subjects such as math and science -- are the ones who are getting paid below market for their type of degree.
"You could start losing your cream of the top to other industries," Martell said.
The bill has gone through several rewrites. The current version of the bill passed in the House on
"We don't think the current version is the perfect solution," said Wotruba, of the
Contact
More Details: Bill's highlights
Pension changes
Current employees would have three options:
-- Pay 4% or 7% of their salary -- depending on what year they were hired -- to maintain the benefits they have, up from the 4% to 5% employees pay now.
-- Pay existing contribution amounts, but accept a reduced pension (the pension multiplier decreases to 1.25% from 1.5%.)
-- Freeze the existing pension and move to a 401(k) with an employer contribution of 4%.
New hires would have a hybrid plan that would consist of a smaller pension and a plan similar to a 401(k). It would include an employer contribution of 3% if the employee contributes 6%. Employees could also choose a 401(k) only.
Retiree health care changes
Retirees would pay 20% toward their health care premium; 10% if they're on
Current employees would continue to pay 3% of their salary toward future retiree health care costs. However, they could opt out and have what they've paid to date credited to a 401(k), with an employer match of up to 2%.
New employees would have no health insurance upon retirement. They would receive up to 2% in matching contributions from their employer into a 401(k), money that could be used to purchase retiree health care.
What's next
If the
More Details: Studying costs
The bill before the
Some Republicans in
"We want to ensure (the system) is going to be around for years to come," said Sen.
State Budget Director
Those increased costs would come in part because moving new employees to a 401(k) would leave fewer people to pay into the system. Also, federal accounting rules would require that if the state closes the system, it must speed up the pace of paying out benefits for those in the system.
"If you close down the pension plan, you have obligations that are constitutionally guaranteed," said Sen.
More Details: Estimating pension benefits
The annual benefit for school employees -- which includes everyone from custodians to teachers to district administrators -- is based on a formula:
-- For employees hired before
-- The average is then multiplied by 1.5% and the number of years the employee has worked for a
Average pensions:
The average annual pension for retired school employees was
Pension amount Number of retirees Percentage
More than
Less than
Source:
___
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