A retired Michigan teacher says he wouldn’t have gone into the profession had he known his payments for his health care in retirement were going to cost about $116 more a month than what he thought he'd have to pay.

A teacher’s pension with 30 years of service from his school district would be more than four times higher than the average private sector pension in the U.S., according to a Mackinac Center for Public Policy analysis. Pension and health care benefit packages for teachers and other government employees generally far exceed the benefits of most private sector workers.

Jim Pierson, the retired Huron Valley teacher mentioned above was highlighted on the website of the Michigan Education Association, which ran a story highlighting the testimony of Pierson talking about Senate Bill 1040, which increases public school employees’ contributions to their retirement. 

The MEA wrote: "Retired Huron Valley teacher Jim Pierson called SB 1040 an example of ‘bait and switch.’ "

“Since I retired in 2010, I’ve been hit with a tax on my pension. Along with other increases, my out-of-pockets costs have doubled," the MEA quoted Pierson as saying. "I didn’t go into teaching to get rich. I sacrificed lower pay for greater security. None of this was in my retirement plans. If I had seen this coming, I would not have gone into teaching.”

MEA Spokesman Doug Pratt didn’t respond to an email seeking comment.

Michael Van Beek, education policy director at the Mackinac Center, estimated that a retiree from Pierson’s school district with a two-person health care plan would see monthly premiums increase from about $155 a month to $271 a month. If that employee was on Medicare, the monthly payments would be significantly less, Van Beek said in an email.

The MEA also quoted Gary Olson, senior policy fellow at Public Sector Consultants, as saying the average pension was $20,000 a year, which “barely keeps a couple above the poverty line.” 

However, according to a Congressional Research Service 2008 report, people with government pensions had a median pension of $18,000 a year while private-sector median pensions were $7,584 a year.

A Huron Valley teacher at the top of the pay scale with a master’s degree would earn $70,260, and with 30 years of service would receive a pension of $31,500 a year, Van Beek said. That pension increases 3 percent every year.

Leon Drolet, chairman of the Michigan Taxpayers Alliance, took exception to Pierson’s claim that he sacrificed lower pay when he went into teaching.

"It’s a long-standing urban legend that teachers say they aren’t making as much in the public sector than if they worked in the private sector," Drolet said.

He pointed to the arguments that the MEA has made for years that outsourcing public school jobs via privatization meant lower pay and benefits for school employees. 

“These folks honestly believe these things," Drolet said. "They are actually indignant because they are so far removed from the realities of the rest of society.”

For every 17 Michigan residents, one person is collecting or will collect generous retirement benefits from the school pension system, including comprehensive health insurance and monthly annuity payments. Proposed reforms to the system — or alternatively just doing nothing — will have a substantial impact on the future of every person who lives here.

There are 445,316 current and former school employees in this enormously expensive system. The cost projected by state officials to prefund a year’s worth of pension benefits for still-active employees was $875.9 million in 2010. Employees kicked-in around 60 percent of this, and taxpayers the rest.

That’s only part of the cost, however, and it’s probably understated. If the state’s payments on prefunding were accurate, then the state would not have an unfunded liability. An additional $1.3 billion must be paid annually because the state ran up $17.6 billion in unfunded liabilities.

And all that just applies to the annuity portion of the benefits. The system also provides health insurance to retirees, and practically nothing has been set aside to cover these expenses, which are disbursed on a “pay as you go” basis. Currently, $794 million annually comes out of taxpayers’ pockets to pay these expenses.

As mentioned, state legislators are considering some major reforms to the system. Among these, new hires would no longer be promised post-retirement health insurance coverage, and instead would be offered a “defined-contribution” health savings account. (They will also all be eligible for Medicare at age 65.)

These reforms will go a long way to fixing the problem, although another generation must pass before all the employees receiving the unfunded health insurance benefits retire and eventually expire, as we all do.

The bill does not, however, fix the problem in pension benefits. The state is still on the hook to develop further substantial unfunded liabilities — the largest factor in pension contributions. The bill does not address reasons why unfunded liabilities occur; it simply shifts the responsibility between employees and employers.

Nor does the bill eliminate the unavoidable political risk inherent in government pension systems: the temptation for politicians to promise higher benefits when cash is flush and defer paying for them when it is not.

At a minimum, the state should close the “defined-benefit” system to new employees (as was done for new state employees starting back in 1997), and instead simply offer these workers 401(k)-style benefits. Among other things this would phase out the temptation for politicians to underfund its promises while offering workers benefits more in line with today’s marketplace.

The enormous school employee pension system is a large part of why Michigan government employee benefits are so far out of line with those received by workers in the private sector — $5.7 billion out of line, as of 2009. Closing the school pension system is essential to getting those benefits back in balance.