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Legislation Cuts Teacher Benefits, Local Rep Calls Bill 'Historic'

Newly hired Michigan public school employees would pay more for their pensions and lose state-funded health care during retirement under a bill headed to Gov. Rick Snyder for approval.

Newly-hired public school employees in Michigan would pay more for their pensions and lose state-funded health care in retirement under a new bill headed to Gov. Rick Snyder for approval.

Sponsors of Senate Bill 1040, which was approved last Wednesday in the Republican-controlled Michigan House, said it will save school districts an estimated $300 million annually and trim $15 billion in legacy debt, according to The Detroit News.

The bill, which reforms the Michigan Public Schools Employees' Retirement System (MPSERS), eliminates long-term pension and health care liability for Michigan's public schools.

MPSERS, a statewide defined-benefit plan for employees, has liabilities currently totalling more than $48 billion — all of which schools must pay.

"This is truly a historic day for Michigan students, our public schools and thousands of public school retirees who are relying on a viable retirement system," said Rep. Chuck Moss (R-Birmingham) in a release.

"We can finally say, after years and years of talk and inaction, after years of debate and analysis, that we've found a solution to the biggest challenge facing Michigan public schools," he added.

If the bill is signed into law, employees hired after Sept. 4 would pay $2,000 into a health care account, plus a matching contribution of up to 2 percent of their pay toward a 401(k)-type account.

According to Moss's office, Michigan schools have been expected to pay more and more into the state retirement system since 1994. Then, schools paid 5 percent of their payroll into the retirement system. Now schools spend up to 27 percent of their payroll on retirements costs, with payments expected to jump as high as 35 percent in coming years.

"The legislature has finally dealt with the unfunded pension bomb that has haunted Michigan public schools for years," Moss said. "We're capping our liabilities and paying down the debt while providing retirees with a fair and sustainable benefit program for their future."

Michigan Democrats see the bill differently.

"Attacking teachers this way is just another assault on our students who are already suffering mightily from the budget cuts imposed by the governor and the Republicans in the last two budgets," state Rep. Ellen Cogen Lipton, D-Huntington Woods, responded Thursday in a press release.

For Birmingham school board member and former state representative hopeful Rob Lawrence, the bill is good but may not go far enough. One of .

"SB 1040 is at good step towards attempting to solve the massive math problem facing MPSERS," he said. "(But) it does not change the fact that the plan will remain significantly under funded."

"While lawmakers will proclaim a great feat has been accomplished, no one will be fully satisfied with this result," Lawrence added. "People will speak of fairness, promises, and support for schools. In reality the system has been broken for many years, but it was convenient to ignore the problem."

Correction: MPSER's unfunded liabilities come out to $48 billion, not million.

Racer Boy August 21, 2012 at 01:50 PM
FINALLY!!! Someone has the fortitude to recognize the unsustainability of the teacher pension scam that has been inflicted on the taxpayers for decades. As is typical of governemnt employees, they expect to be taken care of for life on the taxpayer's dime. Glad to see those days ending and teachers joining the real world with the rest of us.
Sandra Fox August 21, 2012 at 01:51 PM
I worked 37 years as a public school teacher. My beginning salary in 1974 was $5700 and I qualified for food stamps. I contributed to my retirement and opened up an IRA. "You'll be fine" the financial managers said - "They don't tax your pension and you'll be okay!". Here's the reality. After the crash and 30 years in an IRA there is only a little over $6000 in the IRA and I did not take out money - only put money in. I have a son with Aspbergers who is challenged socially and has difficulty holding onto a job. I retired to take care of my 90 yr. old father and do all of this on my pension. Now, with the stroke of a pen, I will be $400 less per month than when I retired. I have to figure out how to pay for everything with the assault on my paycheck. The legislation would have been fine if they hadn't done both - tax my pension and increase what I pay for health care all within one year. I WAS a Republican my entire voting life and never thought Republicans would increase taxes on someone making a small amount of money. Increasing what the gov. takes is not supposed to be part of the Republican party. I worked alongside mostly Republican teachers not Democrats. Now that we are retired and financially raped I don't think many of us will be hard Republican party-liners anymore. What happened to the 3-4% of my salary that I contributed to insure my retired future? Tired of political lies. I worked hard my entire career and don't deserve this!
Sandra Fox August 21, 2012 at 02:04 PM
You are so misinformed. Just like the federal gov. "borrowed" money from Soc. Sec. so did the Michigan gov. underfunding the pension plan it to do what? Give themselves the big benefits and high salaries for a few years work. That's why both our pension plan and Soc. Sec. are in trouble. I contributed 3-4% of my salary into the pension plan to insure I would have enough when I retired. If you look at other pension plans - such as the IBEW - they are quite solvent with the amount of money from members because government couldn't touch their pensions. The problem is the gov. took what we were contributing for themselves over the years and we couldn't do a thing about it.
Steve Fraser August 21, 2012 at 04:38 PM
"MPSERS, a statewide defined-benefit plan for employees, has liabilities currently totalling more than $48 million — all of which schools must pay." That's a BILLION with a "B". Not a million.
Steve Fraser August 21, 2012 at 04:40 PM
This is for FUTURE teachers, correct? Then there was no "cut" in benefits. It is a choice to be made by those that seek employment. Don't like the benefits, don't take the job.
Alan Stamm August 21, 2012 at 04:58 PM
Right you are, Steve. Big difference, indeed.
Roger Gienapp August 21, 2012 at 05:34 PM
It's ironic that legislaters like Moss wouldn't do the same thing for their own retirement benefits. Now that is a waste of taxpayer dollars if there ever was one.
Douglas Scott August 21, 2012 at 09:39 PM
Just for clarification, it is not the "Teacher's Pension." All public school employees have the same pension system. So the law, if signed by the governor, will impact all public school employees, current and future. Thus, it is a significant cut in pension and health care benefits for current employees, which amounts to about a 4%-6% loss in permanent long-term income. Likely, school systems will attract fewer of its best and brightest graduates into public education. It is unfortunate that as a society we are in a "race to the bottom." Teachers get the brunt of the criticism for having benefits all Americans should be afforded. We are being tricked into lauding a future, which may mirror pre WWII high rates of economic security for our elderly population. While this law may bring public educators into the "real world" of private system pensions, it is not something to celebrate as a society
Steve Fraser August 21, 2012 at 09:50 PM
If the bill is signed into law, employees hired AFTER Sept. 4 would pay $2,000 into a health care account, plus a matching contribution of up to 2 percent of their pay toward a 401(k)-type account. Where does it say anywhere in this article that current employees are affected at all by this legislation? Thanks for wanting to "lead by example" and continue to get benefits we all Americans should be afforded. You don't actually say why we should be afforded these benefits. And your comment about "pre WWII high rates of economic security for our elderly population". I think you meant economic INsecurity, but I guess you were blinded by your own anger at being dragged into the real world. Welcome to the party. We're going to be just fine.
Matthew Wade Wimble August 21, 2012 at 10:43 PM
UM and MSU went to defined contribution plans when the rest of state employees did in 1997. They have no problem finding qualified applicants and still attract Nobel-caliber people. Defined contribution makes sense for police and fire, becuase people generally don't want 62 year old firemen trying to pull them out of buildings. 62 year old teachers are fine. They should fund current obligations and convert new hires to defined contribution plans like was done with the rest of state employees. It gets impossible to know exactly how much money to contribute in any given year to cover pension and healthcare obligations going forward. Change the assumptions (e.g. interest rate, longevity, rate of increase in healthcare costs) just a little and the current contribution changes a whole lot do to the power of compounding both interest and healthcare expenses. For example, guess what X should be when X = (1+r)^t when both r and t are unknown or have wide ranges. They can get by with the same system the rest of state employees have had for over a decade.
Douglas Scott August 22, 2012 at 02:56 AM
Here are the economic impacts of the law on current public educators according the SB 1040 H3 as published in State House Record: 1. "Employees hired before January 1, 1990 who chose to remain in the basic plan would have to pay 4% of compensation... All member investment plan (MIP) members hired before July 1, 2010, , would have to pay a flat 7% of compensation" 2. "Beginning January 1, 2013, State premium coverage would be reduced to not more than 80%, with retirees paying at least 20% of retiree health care premium coverage, This change would affect not only future retirees, but also people already retired." Here is why I think we might have trouble attracting and retaining good public educators from a economic view: The new retirement law is a minimum 4% in salary reduction, on top of the 3% tax taken two years ago by the state to pay for retirement health care. Add to that, a mandatory 20% payment in health insurance premium (3%-6% salary reduction depending on years of service) legislated by Lansing in 2011, in addition to reductions in contract salary in many school districts ranging from 2%-10% (Oakland County) over the last 2 years, leaves public educator average pay 12%-23% lower. This is permanent and can get worse; with continued cuts in school funding and no way to raise revenues, school districts will look to cut salaries even more to save funds for students. The noble profession of teaching is becoming economically unattractive.
Steve Fraser August 22, 2012 at 03:15 AM
You nearly had me until you used the word "noble". Any profession is "noble", and being an educator does not bestow special powers of nobility. "Unattractive" does not mean undesirable. You appear to be under the impression that those that may follow you in your profession may be less qualified. If so, wouldn't that be a failure of your noble profession?
beth August 22, 2012 at 03:28 AM
Brilliant. That insures that we will get the very best candidates applying to be teachers in Michigan. NOT.
Sandra Fox August 22, 2012 at 03:59 AM
Sorry Mr. Fraser but you are misinformed. All current retired teachers currently had their pensions cut with the first legislation to tax pensions. All financial managers based their projections on the fact that teacher's pensions would not be taxed. Now, on top of that, retired teachers must pay double the amount they are currently paying for health care starting Jan. 1, 2013. That will now take a huge chunk out of everyone's monthly pay. 4 months notice is not enough time to straighten out finances - car payments, taxes, etc. To be honest - if my family didn't require monthly medications I would go without healthcare. When my father passes I am considering selling my house and leaving to go to another state where pensions are not taxed. That will be dependent on the health of my son. Living with Autism is no picnic. If they would have left those of us that were already retired alone - you probably wouldn't see much flack. I'm tired of hearing that these things were done so I could be in line with the private sector. If I'm to be in line with the private sector than my salary should have been commensurate with the private sector. Trust me - I made almost 50% less than my friends in the private sector with a similar degree.
Sandra Fox August 22, 2012 at 04:24 AM
There is a huge difference in the pay of a university professor compared to that of a classroom teacher. Especially when you are talking about two very expensive colleges in Michigan that charge tuition and raise rates when they have to. Public schools do not operate with that kind of budget and do not charge tuition to district students. I hope when you are 62 you try and teach a class of elementary, middle, or high school students for a year. That's everyday for an entire year. Especially since class sizes have escalated to approx. 30 - 32 children a class. I wonder if you would still make that statement that 62 year old teachers are fine. 62 year old college professors might be fine because they work with adults. Try a class of kindergarten children at 62 yrs.old and see if you can stay awake past 7 p.m. each night. Try a class of 32 middle school children with 10% of your classroom population needing special education with no aides to help. Try a class of 37 high school students who will spend more time figuring out how to text during class than they will on engaging in discussions and preparing for college. Those who are not teachers do not know how physically and mentally draining it is when you do a good job. Studies show it is close to battle fatigue. Try it when you are 62 and if you can handle it - my hat is off to you. I was worn out!
Matthew Wade Wimble August 22, 2012 at 02:29 PM
I used the word "Nobel", as in Alfred Nobel inventor of dynamite. Also, of the Nobel prize. You know, that thing they give to bright people once a year for important research. My point was they can still get the "best and brightest" even though they do not have defined benefit pensions. Sandra, the pay for some university professors in some disciplines (e.g. Medicine, Law, Business, Engineering, big science) is greater than public school teachers, but (based upon the pay grids I have seen) in others subjects (e.g. arts, english, philosophy, etc.) the pay is actually less provided the teacher has a masters and some time in. Compare it with someone who does child protective services. I assume it is stressful to deal with parents are methamphetamine addicts and abused children, they have comparable education to teachers (MSW typically), no summers off, and have been on defined contribution since 1997. The state still has no problem finding people to do the job.
Teacher September 05, 2012 at 01:10 AM
I am a teacher, and I have been teaching special education students for 22 years. I pay for my health care and my pension. It has never been free. During my career I have worked several additional jobs to support my family. I have taken the required 6 graduate credits (which amounts to $1200 -$1400) every five years to renew my Teaching Certificate (the cost is $175.00). I have been teaching for over 20 years and renewed my certificate four times which means I have paid $1375.00 to $1575.00 out of pocket every five years. I also buy the extra supplies such as scissors, paper, crayons, paint, markers, glue, kleenex, games, and books for enjoyment that are not adequately provided because of budget cuts. Since teachers are now joining "the real world"you can expect to see a decrease in the amount of talented young people choosing teaching as a profession. The reality is we will have to adjust to the change but it is sad to think it will be at the expense of the children. Maybe you could take your money you are saving as a taxpayer and open up a Charter School. changes but it is sad to think it will be at the expense of our children.
Racer Girl September 05, 2012 at 02:57 AM
The politics of envy. I lost mine; you can't have yours.

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