Michigan's New Teacher Retirement Law

Earlier this month the Michigan Legislature passed a new law affecting Michigan's retirement system for teachers.  The new law makes three significant changes: (1) offers an incentive for teachers who retire by September 1, (2) requires teachers to start contributing 3% of their salary into a retiree health plan and (3) creates a hybrid defined benefit and defined contribution plan for new school employees (i.e. those hired after July 1, 2010).  Up to this point, Michigan public school teachers, except for those working in public school academies (Michigan's version of charter schools), participate in a defined benefit retirement program.  New teachers will automatically have 2% of their salaries deducted for their defined contribution retirement plan, unless they choose to opt out.

The news reports say that up to 50,000 teachers in Michigan are eligible to retire under this incentive.  This is almost 1/2 of the 103,000 teachers in this state.  So it could potentially have a large impact on our teaching force.  The hope is to reduce costs for districts that are struggling financially by getting rid of expensive experienced teachers and hiring newer less costly ones. The average teacher salary in Michigan is approximately $54,000 while the average starting salary is $35,000.  The school district my kids attend said that they expect to save $30,0000 per teacher who decides to retire.  Of course the Michigan Education Association predicts that the retirement incentive, a higher retirement multiplier, is not enough to get anyone to retire who wasn't already planning to.  The business interests have praised the bill saying that it is a step in the right direction toward the needed structural reform in education.  The State is hoping that 28,000 teachers retire.

As a public employee with a defined contribution plan, I'm okay with educators having that type of retirement plan too.  Of course the recent dip in the stock market gives us all pause about our financial security in retirement. What I really don't like about this legislation is the mandatory 3% contribution for retirement health benefits because there is no guarantee that employees will actually receive these benefits in the future.  In my last post on employment issues, I said that employee compensation is an issue that needs to be considered in Michigan.  With this in mind, I do support the new retirement legislation as a way to address this issue without actually reducing the good wages that educators in Michigan receive.  And it would be wonderful if some of the new teachers who have been waiting in some cases for years for a full-time teaching position are able to secure them.  Rewarding experienced teachers with a retirement incentive is a good way to make this happen.

Here is a link to the law -- Public Act 75 of 2010 - http://www.legislature.mi.gov/(S(vb4trbrlyqcknzvtb2d3uo45))/mileg.aspx?page=GetObject&objectname=2010-SB-1227

Comments

[Justin Bathon]

My concern with going toward defined contribution is that wages will not rise to compensate. One of the reasons that people become teachers is because of the great benefits and retirement (lord knows it is not because of the $30,000 starting salaries). Those retirements used to be guaranteed under defined benefit plans, because the state bore the risk for the state employees. Shifting that risk to the employees is a major loss in total compensation, meaning unless wages or something else goes up to compensate, the overall compensation of employees will have diminished. Now, knowing that we are in tight budget times, that drop might not be that much of an issue. But, at the same time that education needs to recruit a different kind of student to become a teacher, we are faced with the reality that we are going to pay them even less - thus adding to the difficulty of getting even moderately qualified students into the preservice teacher programs. So, I am glad that business is happy with this move, but then I hope I don't have to hear another complaint from them about a lack of qualified teachers.

The good thing for states is that almost no one really understands these retirement systems and they can get by trying to sell this as a positive for teachers. But, shifting the inherent risk in those retirement investments from the state to the employee is not a positive thing for teachers ... at all. How did the MEA take this? I'm guessing they fought it?

[Gina Umpstead]

The MEA did not support the law because of the new 3% retirement health required contribution.

Yes, I understand your point. Defined contribution pretty much means less pay. Unfortunately that is true for just about everyone in Michigan right now. Our faculty association at CMU agreed to a fixed contribution for health insurance costs. I think that is a very bad idea since health care costs are quickly rising. We had a huge increase this year that came directly out of our paychecks.