By: Jessica Brown Bath-DeWitt Connection Staff Writer
DeWitt, MI – Public school employees in Bath and DeWitt, Mich., along with teachers across the state will be forced to take on a new retirement plan. Gov. Rick Snyder recently signed legislation to reform the Michigan Public School Employees Retirement Education System also known as MPSERS.
The reform signed earlier this fall will shrink future debt by $15 billion immediately. The plan involves a switch from a pension system to a 401(K) system, said Kurt Weiss the public information director for the Michigan Department of Technology, Management and Budget.
“Without the change the state faces unfunded liabilities of about $45 billion,” Weiss said.
“Resolving this tremendous debt and financial burden helps our schools, our children, the taxpayers of Michigan and ultimately our school employees by ensuring their retirement benefits are funded,” Snyder said in a press release. “I appreciate all the hard work by the Legislature to get this done.”
According to Weiss, teachers already working in the public school system will adopt a hybrid retirement plan with a combination between the pension and 401(K) outlines, the new plan will also affect retiree healthcare. New teachers hired into the school system will be given the 401(K) benefit plan. Teachers forced to make the switch have been given three choices to make in relation to the hybrid system they will adopt. The legislation specifies a 52 day period for teachers to reach a decision.
Lance Aldrich, a social studies teacher at DeWitt High School said he will be focusing on option number three because it is the closest to the way the current retirement benefits plan functions.
The MPSERS is responsible for the retirement funding of 440,000 public school employees. The state would simply not be available to fund this amount of pensions. The change in the plan is meant to insure the safety and comfort of our state’s teachers upon retirement.
This is the most significant piece of legislation I’ve ever been associated with,” said State Budget Director John Nixon. “The savings from these reforms coupled with the changes we made to the State Employees Retirement System means that we’ve saved more than $20 billion, and that’s pretty mind-boggling.”
Not only does the new retirement plan ensure more secure funding for teacher retirement it also benefits the way funds are distributed throughout classrooms.
“We had to take action to provide relief from the massive liabilities that were draining resources from the classroom. Schools can now plan their budgets knowing that retirement costs are capped and in check for the future,” said Senator Roger Kahn, sponsor for the bill.
Third Party Plan
As of Nov. 16, 2012 the legislature has been examining a required third party plan of the program switch. The Office of Retirement Services submitted an 82-page examination of the plan written by the Segal Company, an independent benefits, compensation and human resources consulting firm.
The goal of the plan is to examine the benefits and the possible consequences of a new system of retirement. Many other states use the combined contribution 401(K) style retirement system as opposed to a pension system including Missouri and Iowa to name a few. These states have successfully achieved their goal of lowering unfunded debt for their state.
In Michigan, a pension based program has become a problem as a result of an average longer life span, because of improved medical technologies people live on average 15 years longer than years ago and based on the sheer amount of teachers in the state there will not be enough funding to pay out all pensions. With a new 401(K) contribution plan teachers retirement funding will be more secure than the current program.
The new plan is also expected to attract younger talent and employees according to the Segal report. They also argue the possibility that early retirement benefits can result in unwanted workforce implications.
Opposition to Change
The switch from the pension retirement system to a 401(K) style plan has some local teachers concerned.
“We will have to pay more. I do not like it,” Aldrich said. “This was not a voluntary decision I made as characterized by the system.”
Many feel not enough attention is paid to education funding in general and that teachers are not given enough positive attention as it is. Some are concerned that the new plan will cause cuts to their overall lifetime earnings and do not approve of the fact that their paychecks will take a cut in the present even though all the money comes back to them eventually.
“Teachers don’t necessarily like the fact that they will be paying more upfront to fund their retirement and healthcare but it will ensure the money is there when the time for retirement comes,” Weiss said.
Earlier this fall the Michigan Education Association filed a lawsuit against the changes to the pension method that addressed a time limit of 52 days for teachers to educate themselves on the new system and make required changes. The 52 day time limit was challenged by Ingham County Circuit Court Judge Aquilina within hours of the bills signing.
Aquilina ruled in the case on Nov. 29 that the 52 day period is not enough time for teachers to adequately educate themselves on the legislation and make such a big life changing decision.
“This legislation is extremely complicated and I’ve been working with seasoned legislators who are struggling with all the ins and outs,” Weiss said. “I can understand the wishes for a longer time table.”
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