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Bills Trim Teacher Pension Option
By Chris Andrews, Lancing State Journal
September 20, 2005
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Chris Holmes, Lansing State Starting: Kelley Youmans is in her first year of teaching and hopes to start buying extra years of service for her pension by Christmas. She teaches at Eaton Rapids High School. Legislators are considering measures that would eliminate that possibility for new teachers in the state. They say it costs taxpayers too much.
Under consideration
other legislation would:
• Require new teachers to enter a 401(k) style defined-contribution retirement system rather than the traditional defined-benefit system that guarantees monthly pension checks for
life.
• Reduce the retirement health care benefits for new school employees.
• Create a state-run health care system for school employees, a move that the Michigan Education Association says would result in reduced benefits.
Kelley Youmans just started her teaching career this year at Eaton Rapids High School. And she hopes to start buying extra years of service for her pension by Christmas.
Youmans learned from professors at Michigan State University as well as other teachers that buying pension credits early will pay off come retirement time.
The credits allow school employees to retire up to five years earlier or get larger pensions if they work the same number of years.
"They said it was the smartest financial decision I could make," the 23-year-old said.
But state lawmakers are considering bills that would prevent new employees from buying pension credits until they've worked for schools for at least 15 years. The Senate education committee has held two hearings and is expected to act on them this fall.
The cost of credits is determined by actuaries and based on employees' age, years of service and salary. Young employees pay less because their salaries are lower and the pension system has more years to invest the money.
State Sen. Wayne Kuipers, sponsor of a Senate bill, says he's philosophically opposed to the idea of buying pension credits - especially at a young age.
"I don't know of any other employment opportunity where you can buy years of service credits. That is the craziest thing I've ever heard," said Kuipers, R-Holland.
Retirement costs rising:
The measure is part of a broader effort by Republicans to rein in retirement and health care costs. School administrators say those costs are rising so quickly that classroom resources must be cut.
Under today's law, school employees can buy up to five years of service credits. State-government employees have a similar opportunity.
Years ago, school employees could buy credits for a variety of reasons, such as military service or teaching in another state or parochial school. Lawmakers decided to simplify things by opening the credits to all employees.
Some 280 Lansing School District employees are buying credits today.
Youmans, who teaches English, stands to get the best deal possible because her credits will be figured on her salary when she was a substitute teacher before graduating. She said teachers are underpaid and the credits provide a lift.
"I'll be able to retire five years earlier and possibly pursue other interests," she said. "Hopefully, I'll have a family by then."
Financial difficulties:
Kuipers, who chairs the Senate Education Committee, said he's convinced that the arrangement comes at a cost to school districts and taxpayers. He said the era of Rolls Royce benefits for school employees must end given the state's financial difficulties.
"If you're buying credits based on employment when you're at $27,000 as opposed to buying them when you're at $65,000 a year, that's a big difference," Kuipers said. "If you're buying in the first five years, of course, it's a hit to the system."
Chris DeRose, director of the state Office of Retirement Services, said the practice doesn't hurt the retirement system. He compares buying pension credits to opening a savings account. "The money gets invested, and you get a higher pension," he said.
But DeRose also said school employees who retire early because of the credits get retiree health care benefits earlier. The Michigan Public School Employees Retirement Board has recommended that those retirees be required to pay the full insurance premiums until they would otherwise be eligible.
Teacher likes system:
Pete Edick, a veteran teacher in Eaton Rapids, doesn't believe the system's broken - so it doesn't need fixing. He bought two years of service about 25 years ago, which will boost his pension by 3 percent. "When you purchase, it's based on actuarial soundness. It doesn't matter whether you buy five years into teaching or 20 years into teaching," he said.
But Kuipers said the current practice also has the effect of encouraging teachers to leave the profession sooner.
"Why would we want to encourage someone in the prime of their career to retire after 25 years?" he asked. "If they're a good teacher, that's when they're at their best."
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