Most Michigan Teachers Leave Before Qualifying For a Pension

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.