Millions at stake for schools as Senate considers teacher retirement change
David Campbell, superintendent of the Livingston Educational Service Agency, has been watching the debate over reform of the Michigan Public School Employees Retirement System (MPSERS) for years from multiple perspectives, as a public school administrator charged with spending scarce resources, and as a future pensioner himself who will feel the effects of the reforms. All of which makes advocating for MPSERS reform more complicated and less gratifying than, for instance, advocating for direct spending to benefit students.
The Legislature has grappled this session with fixes to the system, currently underfunded by $45 billion. Senate Bill1040 includes a wide range of reforms, affecting workers across the spectrum from new hires to retirees. However, some in the Senate are balking, asking for the system to be switched to defined contribution-only for new hires, rather than the hybrid system now in place. The Senate returns for a session on Wednesday (July 18).
Bridge asked Campbell, who is president-elect of the Michigan Association of School Administrators, for his take on the reform efforts so far.
Bridge: What are your thoughts at this point in the process?
A: I think the House has a pretty good plan. It is balanced and fiscally responsible. It is by far the most substantial pension reform we have seen to MPSERS and puts it on a much more sustainable course. I would recommend they re-evaluate their recommended switch from funding the system based on a percentage of payroll to the cost of operating expenses (COE), as that will have harmful unintended consequences. However, they built time into the bill to study it in more depth, so I support the House bill.
Bridge: What about the Senate’s plan?
A: The Senate would like to convert us to a defined-contribution plan only. That's two fundamentally different proposals. The House and Governor’s Office have significant concerns with (that), because they say the conversion costs are just too high. And it will end up being more expensive in the long run. The hybrid pension plan that new educators hired since July 1, 2010, are on is fiscally responsible, so I am not sure the defined contribution accomplishes much.
Bridge: Because you need a large amount of pre-funding?
A: Yes. And that's the issue. The House Fiscal Agency projects the cost to converting to a defined contribution plan to be about $8 billion. I talked to two Republican senators, and they don’t think it is that high. The cost projections they are looking at are different than what the House is seeing, so they need to study the cost projections of either change in more depth. I hope the budget projections are being done without political agendas, so wise decisions can be made.
Bridge: Why is it so much higher?
A: It has to do with funding the pensions of those currently in the system while new employees would not be in the system. But … if the House plan passes, next year's savings to Livingston County public school districts is nearly $4.5 million. We'll be paying 27.37 percent of payroll (in MPSERS contribution) if they don't do anything. If it's capped at 24.46 percent (under one version of the House plan), that's substantial pension reform. It's not something to laugh off.
The 2010 pension reform was less than effective. It ended up giving a 7 percent higher pension to tens of thousands of retirees while giving a 3 percent pay cut to those still working. The total savings for all Michigan school districts is about $250 million per year, if the House plan passes. You can't say that's not substantial pension reform. Where's that coming from? It's coming from the core of the reforms, which means less generous benefits for retirees, current employees and future employees.
Bridge: Do you think support of the House plan is shared by most people at the district level?
A: My sense is that most district administrators support the House plan, for a lot of reasons: It's fiscally responsible, in that it pre-funds the health care, and that helps the state's credit rating and protects promised benefits. It requires retirees to pay more. And it puts it on a path of sustainability. That's responsible. It keeps the pension plan in place, but a less generous system.
My biggest concern with all this is that I don't want Michigan to lose the most talented and marketable educators to other states. Compensation is all about attracting and retaining talent. And the ones that we lose when you put yourself at a competitive disadvantage are your sharpest and most marketable educators. Always. That's the way the labor market works.
And if we put ourselves at a competitive disadvantage with neighboring states by not having a pension system at all, we don't lose our people who are easy to replace, we lose the most marketable. That means math, science, special education, foreign language, counselors and administrators. There are just not enough qualified and talented people going into those very important areas.
I have a friend who says, 'I'm sure there'd be 100 applications for any job you'd post.' Are you kidding? For an occupational therapist or speech therapist? Maybe three. We are competing with hospitals, who pay well for those.
If you go to defined contribution only, we will put ourselves at a disadvantage with other states. I was talking to a senator who said private companies are all defined-contribution now and have been for years. I said, 'Yes, but I bet those CEOs did a comparison and benchmarked what the competition is doing before their conversion.'
Bridge: What is the benchmark for neighboring states?
A: Nobody's going to defined contribution only, except Alaska, I believe. States around us have less generous systems or are putting pensions on a diet, like the House is trying to do and was partially done with the hybrid plan in 2010. We have to work longer, take smaller pensions and pay more for our health care to stay competitive. Implementing those changes takes time, as it is important to be fair to people who have been in the system for many years.
Bridge: What does $4.5 million mean to a district like yours?
A: Each district will make the decisions that are best for them. Some may take their savings and hire more teachers to lower class sizes. Some may hire back counselors or assistant-principal positions that had been eliminated. Others may take the savings and reduce their deficit, or use it to not charge parents “pay to play” fees for athletics. The bottom line is thatMichigan’s public schools spend far more money sustaining the pension system than most states and it needs to be brought under control.
Bridge: What created this unsustainable system?
A: It evolved over the years and was built on the strength of the auto industry when it was at its peak. The system became more generous than was sustainable when the global economy caught up to Michigan and permanently changed our economy. If our leaders in Lansing had implemented the reforms the House is considering years ago, we would be in far better shape and some of the reforms may not need to be as drastic.
Staff Writer Nancy Nall Derringer has been a writer, editor and teacher in Metro Detroit for seven years, and was a co-founder and editor of GrossePointeToday.com, an early experiment in hyperlocal journalism. Before that, she worked for 20 years in Fort Wayne, Indiana, where she won numerous state and national awards for her work as a columnist for The News-Sentinel.
Previous coverage on MPSERS
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