Teacher retirement fund needs help

May 2, 2012

There’s an ongoing debate about how to sustainably fund the Michigan Public School Employee Retirement System.

According the Bridge Magazine, an online publication of the Center for Michigan, the retirement system is underfunded by $45 billion.

Bridge Magazine staff writer, Nancy Derringer, has taken an in-depth look at this issue.

Derringer notes that Senate bill 1040 would change the way the retirement system is funded. "If you are a new employee your contribution to the retire system would increase to 8%. And they currently pay 3 and 6.2 % of their salary. And then if you are a retiree you currently have your health care premiums 90% paid by the state and you pay 10%, that would switch to 80/20."

One of the biggest problems is that Michigan has lost population over the last decade. Derringer says with the loss of population is the loss of school children to enroll, which means you need fewer teachers.

"Also in part as a result of the pressures of funding the pension system, school districts have been under pressure to cut come of their own payrolls, and one of the easy ways to do that is by privatization and outsourcing. And so we are far more likely to see for instance, janitorial services or cafeteria services now being provided by private companies which don’t pay into the retirement fund," she says.

There's also the issue of retirement eligibility. As the system works now people can retire after 25 years of service, conceivably they could retire in, say their late 40's. Derringer says there are talks about raising the retirement age to 60.

"It's probably pretty difficult for the average worker in the private sector to feel a lot of sympathy for somebody complaining that they can't leave the workforce with a pension and a mostly paid health care plan."

"However the teachers say, with a great deal of justification, that these were the rules that were laid out when they started playing the game, they played by the rules and now the rule are changing," Derringer adds.