MEA Proposed Early Retirement Incentive Eyed as Drain on Fund
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In late January, the MEA held a press conference and released a proposal for an early retirement incentive plan for school employees.
One of Michigan's most important groups of retired school employees is questioning the Michigan Education Association's (MEA) proposed retirement incentive.
The Michigan Association of Retired School Personnel (MARSP) has cast a critical eye at the incentive plan but so far has not declared its opposition.
In late January, the MEA held a press conference and released a proposal for an early retirement incentive plan for school employees.
A bi-partisan group of legislators is supporting the proposal, which claims that by raising the percentage multiplier for a window period and allowing qualified school employees to sign up for retirement, it will save the school districts millions of dollars. School employees who retire after that time, however, will revert to the lower multiplier which all of the current retirees used when they retired.
For example, a school retiree who would get 45 percent of his or her pay under the present system would under the new plan receive 60 percent of present pay.
The multiplier used in calculating retirement pay would be increased from 1.5 percent to 2.0 percent. Therefore, a school employee being paid $60,000 now would get $36,000 a year in retirement instead of the presently-calculated $27,000.
Of course this "golden parachute" would not be popular with current retirees whose pensions have been figured using a 1.5 percent multiplier.
The plan also apparently doesn't take into consideration the fact that under present law the retirees would receive full health care benefits until they qualify for Medicare at age 62.
So not only would the state being paying full health care for current employees it would be paying full health care for all of the estimated 10,000 to 13,000 retirees under the new plan. Most of the retirees receiving incentives would probably be under age 62.
Also, health insurance costs are expected to increase in the future.
Somebody needs to run those numbers, figuring the ages of the potential retirees, before consideration of this plan goes any farther.
MARSP states: "It appears that at the present time the proposal has more opponents than supporters, and the latest opponent to go on record is Governor Granholm. The opposition claims that the group of retirees who will take this plan -- estimated at around 9,000 out of about 65,000 who might be eligible -- will cause a huge drain on the Michigan Public School Employees Retirement System (MPSERS) fund."
"That drain will be caused by the higher pensions paid to these recent retirees, who will be replaced by lower paid school employees. The school districts' contribution is calculated as a percentage of payroll. Therefore, the contribution would drop, causing a deficit in the retirement fund.
"Who makes up the difference? The school districts make up the difference.
"Where is the savings? In the long run the schools' contribution would have to increase to continue supporting the more highly compensated retirees. The supporters believe that the schools will buy in because it will give them cash flow now and the cost hit will be "down the road." This proposal is great for MEA members who take the offer, and great for MEA members who are unemployed as this will get them a job."
What about health insurance? The majority of the 9,000 additional retirees would also be placed on the MPSERS Master Health Care Plan, which would cause the school districts' contribution to increase since that plan is on a pay-as-you-go basis, not pre-funded.
An unintended consequence of the proposal might be that a district could lose an entire or very large part of a department of employees, and then need to hire the retirees back on private contracts.
It is also speculated that this proposal would create three classes of retirees: those who retired before the incentive; those who retired with the incentive; and those who retired after the incentive. We already have two classes of retirees: those who are basic plan retirees and those who are MIP retirees. So this proposal could possibly create five classes of retirees.
The MARSP Board of Directors has not taken an official position since there are no details. A statement by the organization follows: "There has not been any good explanation of the specifics in the proposal either. However, the board sees the importance of its responsibility as protector of retiree benefits to consider the future solvency of the fund, and has many questions about the proposal. When/if legislation is introduced, you can be sure that the MARSP Legislative Committee will study the bill and recommend to the Board of Directors a position for its consideration."
Erica Weiss, of the Michigan Policy Network, has this to say: "After reading the initial reports regarding the MEA and the new retirement incentive plan it begs the question if the motives behind the legislation are true and the projections accurate.
"The MEA is arguing for an increase in the amount of money to be given out for a one time buy out of the teachers who are able to retire with a full pension. For some teachers, they would actually be getting $500 more a month in their pension.
"The MEA projects that this initial increase in payments out to the new retirees will allow for a later savings with such a change in the payroll. Adding to that the increased ability for the state to be able to hire new graduates as teachers.
"However, what I question is whether or not this is going to actually save money on the education budget or if it will just turn out to be a mistake in a few years when the new teachers receive bonuses for receiving masters degrees and we are no further ahead, but further behind in the deficit.
"If this program actually would save as much money as the MEA is suggesting: $400 million next year and $1.7 billion in ten years then it would be a smart move for the state, but I think we need an outside source to check the calculations against the MEA projections."
(In the interest of full disclosure, the author of this article is a member of MARSP, the Michigan Association of Retired School Personnel.) ###
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mgaken9517 Says:
On February 23, 2009
at 10:03 AM
Get an outside source to check the MEA figures. It's still not fair to teachers who retired already.
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Dave Rogers |
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