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Most Michigan Teachers Leave Before Qualifying For a Pension
Michigan Capitol Confidential ^ | 7/5/2015 | Tom Gantert

Posted on 07/08/2015 5:41:09 AM PDT by MichCapCon

Fewer than half of Michigan teachers will end up qualifying for retirement benefits under the state’s public school pension system. That means the Michigan Public School Employees Retirement System, which carries a $26.5 billion unfunded liability, is not only a raw deal for taxpayers, it’s not a very good deal for most teachers either.

According to one estimate, just 43.4 percent of teachers will stay in the system for the 10 years required to become fully vested. When teachers leave the system before that time — to move, switch jobs, stay home with children or for another reason — they get back the amount they paid into the system but not the money their employer (Michigan taxpayers) contributed on their behalf. If these teachers were in a defined contribution 401(k)-type system, some of that money might have gone into their own personal retirement accounts — ones they could take with them in those situations.

“A retirement system that does not provide benefits to half of its members can hardly be said to be a retirement system at all,” said James Hohman, the assistant director of fiscal policy at the Mackinac Center for Public Policy. “Employers are making huge contributions on behalf of employees who may never work long enough to receive a dime of those payments.”

Traditional defined benefit systems, such as MPSERS, may no longer fit the modern career path. Over the decades teachers, especially younger ones, have become more mobile. They are less likely to stick with one employer or even stay in one state.

Giving new Michigan school employees 401k contributions instead of enrolling them in the current system would allow them to build up a portable nest egg that's all theirs. It would also benefit taxpayers by eventually winding down the current pension system's unfunded liabilities.

The debate continues on whether MPSERS should be closed or allowed to rumble onward, notwithstanding a long history of persistent undefunding. It is complex, esoteric, obtuse and usually drier than a desert. Nonetheless, projections like these show that what’s at stake is the stuff of flesh and blood and hopes and dreams.

The figures referenced in this article are from a 2014 report published by Washington, D.C.- based Bellwether Education Partners titled: “Friends Without Benefits: How States Systematically Shortchange Teachers’ Retirement and Threaten Their Retirement Security.”

The report used data from state pension plans to estimate how many teachers will qualify for at least a minimal pension benefit. Recommendations from the report were only partially consistent with those offered by the Mackinac Center.


TOPICS: Education
KEYWORDS: pension

1 posted on 07/08/2015 5:41:10 AM PDT by MichCapCon
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To: MichCapCon

Fully vested after 10 years? That’s crazy. It should be 30 years.


2 posted on 07/08/2015 5:51:38 AM PDT by grania
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To: MichCapCon
According to one estimate, just 43.4 percent of teachers will stay in the system for the 10 years required to become fully vested.

Only 43.4% get vested and it's still in a huge hole?

End these ridiculous teacher pension systems, everywhere, immediately.

401Ks and be as generous with the match as you want, but no more unfunded, open-ended liabilities.

Do the same with all public employees. No. More. Pensions.

3 posted on 07/08/2015 6:10:01 AM PDT by Toddsterpatriot ("Telling the government to lower trade barriers to zero...is government interference" central_va)
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To: MichCapCon
When teachers leave the system before that time — to move, switch jobs, stay home with children or for another reason — they get back the amount they paid into the system but not the money their employer (Michigan taxpayers) contributed on their behalf.

Good! Why are taxpayers paying on their behalf in the first place?

They should pay for their own damn pensions.

4 posted on 07/08/2015 6:13:12 AM PDT by Texas Eagle (If it wasn't for double-standards, Liberals would have no standards at all -- Texas Eagle)
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To: MichCapCon
...what’s at stake is the stuff of flesh and blood and hopes and dreams. P>Yeah. No kidding. The hopes and dreams of those who work for the education Unions and pension system.

Oh. Did you think the author of this piece is losing sleep over the plight of the teachers?

5 posted on 07/08/2015 6:17:13 AM PDT by Texas Eagle (If it wasn't for double-standards, Liberals would have no standards at all -- Texas Eagle)
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To: grania


"Fully vested" - "A person's right to the full amount of some type of benefit, most commonly employee benefits such as stock options, profit sharing or retirement benefits. Fully vested benefits often accrue to employees each year, but they only become the employee's property according to a vesting schedule. Vesting may occur on a gradual schedule, such as 25% per year, or on a "cliff" schedule where 100% of benefits vest at a set time, such as four years after the award date.'

From: Investopedia

Vesting only means they have some defined interest in the benefit, not that they will receive a full retirement benefit at 10 years. In my state of OK, teacher retirement is combination of age and years in the system to achieve the full benefit. The current combination number is 90, my wife qualified under the previous combination of 80.

6 posted on 07/08/2015 6:47:37 AM PDT by T-Bird45 (It feels like the seventies, and it shouldn't.)
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To: T-Bird45
That's how the system was when I retired from teaching in MA, a combination of age + years teaching. That was before the retirements spun out of control, so it wasn't a generous arrangement. I think most states have scaled back to those earlier, viable numbers.

But 10 years? That's not many. It would be better to give back the money paid into the pension, plus some interest. FWIW, when I left substituting in OH at my age, I had partial years that didn't add up to the 5 years !! for vesting over age 65, so I got back what I paid in. I'd think public pensions wouldn't be anywhere near the problem they are if vesting weren't so lenient.

7 posted on 07/08/2015 7:01:07 AM PDT by grania
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To: T-Bird45

Here is their rule book:

http://www.michigan.gov/documents/MPSERS1_92795_7.pdf

Its complicated, of course. It looks like somebody with 10 years can get full benefits if they are 60 years old.

The employee contribution varies based upon when you start, but seems to be around 4%.

The benefits vary wildly, but it is basically 1.5% of ending salary multiplied by years of service.

So a teacher getting $50k would out in $20k over 10 years...retire at 60, and get $625 a month...I think avg age is 77, so ultimate payout would be $127,500. So, hopefully Michigan can turn $20k into $127k by investing it for 27 years....seems tough though.

And a 30 year teacher making $50k would have put in $60k...and the formula would get them $1,875 a month. Somehow the minimum age for 30 year retirement is 46, because there are some options to accelerate time of service...but assuming a retirement age of 55, and living to 77, that employee would ultimately get $495k.

I know this is really much more complicated, there are matching funds as part of compensation, etc...but from the outside looking in, it seems the rosiest of predictions must have been made when penciling out this plan.


8 posted on 07/08/2015 7:27:33 AM PDT by lacrew
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To: lacrew

$625/month, quite the princely sum...NOT!! My wife pays her full health insurance out of her retirement pay and it is right around that $625/month so we’re not talking Easy Street here. Of course, she retired with 29 years of service but hadn’t made it to any $50k/year, either, as a masters degreed speech pathologist. She retired in 2009 at age 53 under the Rule of 80.

In OK, the 7% contribution rate for the TRS is usually, but not required to be, paid by the school board as a fringe benefit. The retirement age is 62 under current rules for new hires. The benefit base is 2% of the final 5 year average salary x years of service credited in the system.


9 posted on 07/08/2015 8:09:51 AM PDT by T-Bird45 (It feels like the seventies, and it shouldn't.)
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To: MichCapCon

It sounds like the projected payouts exceed the combined investment earnings and contributions to the pension plans.

A pension plan, if run properly, should not be in a position where payouts exceed money coming in.

It sounds like these calculations of benefits paid, based on age combined with years of service, is not tied into the contributions plus investment earnings of the pension fund. And that’s the key problem right there.

Sadly for retirees, benefits would have to be cut, so as to match the investment earnings and contributions. Long term, these funds are going to go broke if nothing is done.

This sounds like a smaller version of the problems with Social Security at the national level.


10 posted on 07/08/2015 8:24:11 AM PDT by Dilbert San Diego
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To: grania
Fully vested after 10 years? That’s crazy. It should be 30 years.

I am not fully aware of how Michigan works, but Illinois has something similar. Before ~1997 there was 1 traditional retirement plan with a 5 year vesting. If you left employment with the state, you couldn't get the states share until age 55. If you worked for more than 5 years, you were better off leaving it with the state and taking a meager retirement annuity. Around 1997 they added a 401K style self managed plan and a portable pension plan. Vesting for both was 5 years. During the financial crisis the state changed the vesting to 10 years for new hires for the traditional and portable pension plans. They left vesting for self managed plan at 5 years. 10 year vesting for a portable plan isn't very portable. Somebody that job hops a lot like a sports coach, would take the self managed plan.

11 posted on 07/08/2015 8:47:10 AM PDT by EVO X
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To: T-Bird45

Well I made no judgment on whether or not $625 was a lot or a little. I just laid out the facts of their plan.

My only editorializing was my opinion that the input/output of the plan did not seem sustainable.

But if I were to editorialize about the amount. A 60 y/o with only 10 years of service would have started out as a 50 y/o in one of two possible situations:

1. They have worked around 25-30 years at another job, and have a 401k from that

2. They have worked around 25-30 years at another job, and have no retirement savings to show for it.

In scenario #1, the $625 supplements their other income.

In scenario #2, a 50 y/o facing a retirement at 62.5 and living off of social security now retires a few years earlier with at least a small pension. In the private sector, a 50 y/o who had never saved would have a hard time attaining even that.

Since you brought up your wife’s situation, I will respond to it...with no intended malice or personal attack. Frankly, 53 is a very early age to retire, in my opinion; and, complaints about the dollar amount of a pension, for a 53 y/o retiree don’t resonate with me.

You mentioned the degree that your wife has. I find it very interesting that many people around me who complain about teacher salary include their level of education. To me, it speaks of an expectation that a degree automatically equals a certain level of pay. I think this notion is pushed by colleges, especially when it comes time for students to borrow money for school. Its not just the teaching industry. I’ve seen firemen discuss the same thing, dealing with expectations after getting an associates degree. My own industry has licensing and an expectation of a pay increase. But common to just about all professions, eventually the advanced degree, certification, etc. becomes practically a pre-requisite, and doesn’t garner advanced pay. Its almost inevitable, and not unique to teaching.

Full disclosure - my father is a teacher. And he has an advanced degree (PHD). He went a different route, and got employed at a private school right out of college. He got paid less than dirt at first - and worked a weekend and full time summer job for 25 years. Now he gets paid better than dirt (and takes his weekends off)...and is currently considering retirement at 71 years old. No pension. No 401k employer match for him either. All personal savings...no retirement at 53 in the private sector. In fact, he was probably still working his weekend and summer job at 53.

It would be great if everybody could get a big pension...and retire early. But I don’t think the numbers work on that. And even though a $625/mo pension after 10 years seems paltry to you, that 10 year vestment makes jaws hit the floor in the private sector. What if somebody lived into their 90’s? Ten years of work yields over 30 years of pension? Its just upside down.

And here is my final complaint about unrealistic pension promises. They are made by yesterday’s politicians...but today’s politicians have to deal with it. And usually the adults in the room who try to take care of it are conservatives. Liberals just continue to demagogue the issue (while silently hoping that the adults do fix it).

Anyway, I support a weaning of public employees off of open ended pensions. Do a 401k or something else, but we can’t keep making open ended promises. Even $625/mo adds up quickly.


12 posted on 07/08/2015 9:11:35 AM PDT by lacrew
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