Exorbitant Michigan Pensions Hurt Children, Teachers

Published October 9, 2012

Long after ramping up benefits radically during the pre-2008 economic growth period (and collecting lots of votes from unionized teachers), Michigan lawmakers are now reluctant to address the state’s imprudent, exorbitant, and unfair public school employee pension system even though it hurts taxpayers, children, and teachers alike. This corrupt system cries out for serious reform, but few of the state’s lawmakers appear to be listening.

First, the taxpayer side of the equation. Using 2011 Census Bureau figures for population and average household, and state figures for unfunded liabilities, the gap between what Michigan has saved and what it will owe just for current employees’ retirement benefits is approximately $11,000 per household.

If Gov. Rick Snyder signs the changes legislators recently made to retired teacher health care benefits, which reportedly would reduce the $46 billion liability to approximately $30 billion, that still leaves each household $7,716 in the hole. This is $7,716 Michigan’s taxpaying families must pay in return for no additional services from the state, and $7,716 lost to private spending and investment the state economy desperately needs. Pinched Michigan families would love to get those dollars back, and they should.

That’s just half the taxpayer side. The other is by now more well-known: Public school employee pension benefits tend to be outrageous and unfair.

The latest report from the Michigan Public School Employee Retirement System in 2012 shows the average pension, health, vision, and dental benefits current retirees receive. (The vast majority of retirees get all these benefits.) In 2010 the average pension draw was $20,316, the average health benefit cost $22,092, and the average vision/dental benefit cost $21,648. Totaled, as it is for most employees, that’s $64,056 per year.

By contrast, the average Social Security annual benefit is approximately $14,760 in 2012, according to the Social Security Administration. And if a retired Michigan school employee is married or also draws Social Security, he or she can add those benefits right on top for an annual pension the average Michigander would love to earn as a salary: $78,816 or more.

The state constitution protects current employees’ promised pension payouts, but not the two-thirds of current employees’ retiree benefits spent on health care benefits. The time to reform the entire system was yesterday. That being impossible, the time is now.

Current and future teachers should be just as enthusiastic for reform as informed taxpayers are. The current system is biased in favor of certain teachers: those who never have a different job, stay in the system at least 30 years, and retire to that pretty set of checks at the comfortable age of 55. Far lower compensation penalizes teachers who do not follow these rules.

This restricts teachers’ freedom to move to another state or–more important given Michigan’s population loss–move in from another state, enter teaching from another profession, or exit teaching for another opportunity. It also discriminates against younger teachers, who can never be eligible for benefits approaching those of currently retired teachers because the state has already spent everyone’s future.

All of this means Michigan children must attend schools where many teachers are disgruntled because the state promised them more than anyone can afford and the economy and pension system push current employees to cling to positions despite a lack of fit and passion.

The fairest teacher compensation system is the one most likely to give more school employees more direct control and responsibility over their own affairs and reduce lawmakers’ ability to repeat the current mess down the road. Halting those extravagant health care benefits should be just a start.

Joy Pullmann ([email protected]) is managing editor of School Reform News and an education research fellow at The Heartland Institute.