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Pension Costs

March 28, 2011
One of the most common questions regarding the school budget concerns our pension costs.  As a Michigan public school district we are mandated to participate in the Michigan Public Schools Employee Retirement System (MPSERS).  This means that we contribute a percentage of payroll to the State of Michigan and in return our employees earn a defined benefit pension upon retirement.  Not to get too deep into the nuances of the process, but as an example an employee who works for 30 years and has a final salary average of $75,000 would earn a yearly pension of $33,750.

The model retirement savings plan in the private sector has shifted over the last two decades from defined benefit plans to defined contribution plans (401k type plans).  One of the reasons is that defined benefit plans are expensive, particularly if the pension fund investments are not performing well.

The issue for school districts is that the cost of funding the existing and forecasted pension costs have increased by almost 50% since 2008-2009.  The total payroll for Saline Area Schools is about $35,000,000.  This means three years ago our MPSERS payments were $5,789,000  (16.54% of payroll) on that amount.  Next year, payments on that same amount will be $8,561,000 (24.46% of payroll) – an increase of $2,772,000.  This amounts to about $500 per child since 2008-2009.  To make matters even worse…. it is set at 27.37% for 2012-2013, which means another $1 million on the same payroll number.

As Saline and other districts across the State of Michigan continue to cut costs, we often look to contract out certain aspects of our operation and save on paying pension costs.  However, the remaining salaries now have to pick up a greater share of required pension costs.  Multiply this strategy across the 500+ school districts, and the pension costs raise to significant numbers and reflects in the higher percentages we are now required to pay.  We save on one end and have to pay back on the other.

We are mandated to participate and are not allowed to pass along the increasing costs to the individual employees. It is clear to me and many others that the system is not working and is in desperate need of reform.
11 Comments leave one →
  1. Lisa Dickson permalink
    March 28, 2011 10:14 pm

    Mr. Graden,
    I understand that the rise in pension costs is a concern to most and a question you need to answer. With all due respect, I feel that your inclusion of a 30 year salary with expected pension salary is an unnecessary bit of information to include in this article. I feel you could have gotten the same message across without this information and I urge you to rewrite this.
    You have some of the finest educators in the State of Michigan working for you in this school district and there is enough negative press and attitude surrounding them already. There needs to be less fuel on the fire, not more.

  2. Shannon permalink
    March 28, 2011 10:22 pm

    Scot, so these numbers are decided by the state? Do union contracts play a role in these numbers? Thanks.

  3. Ram permalink
    March 28, 2011 10:33 pm

    Mr. Graden,
    I understand that the rise in pension costs is a concern to most and a question you need to answer. I feel that your inclusion of a 30 year salary with expected pension salary is a necessary bit of information to include in this article. I feel you could not have gotten the same message across without including at least one concrete example. I noticed that you did not say it was in any way representative of individual teachers nor of any general trend of teachers in the district.
    You do have some of the finest educators in the State of Michigan working for you in this school district and there is not enough negative press and attitude surrounding them. There needs to be more fuel on the fire, so that public sector unions can be dismantled in the state of Michigan.
    Private sector unions negotiate in the interest of the workers against the interests of the shareholders of the corporation.
    Public sector unions negotiate in the interest of the workers against the interests of the taxpayers. Furthermore, the taxpayers are represented by public officials. Public officials are often influenced by the strong influence of unions in elections because of their ability to force the collection of dues from all employees in their field.
    Unions are winning while taxpayers (and most importantly, the children of taxpayers) are losing.

  4. March 29, 2011 6:31 am

    I included the example to bring some context to what a pension actually looks like for a typical MPSERS retiree. It is NOT a public sector union issue. The pension based retirement system is in place for ALL public school employees. For example, I am not in a collective bargaining unit, however, I am part of the pension system. I feel it is important to include in the conversation as people have asked me that specific question. The amount is in line (actually lower in many cases) with municipal, fire, and police pension systems.

    Unions do not negotiate the pension contributions of the members or of the district. It is NOT a part of any Saline contract – and I don’t know of it being a part of any local agreements across the State of Michigan.

    The contribution levels, benefit levels, rules for qualifying, etc. for both employees and employers are set at the State level.

  5. Shannon permalink
    March 29, 2011 12:20 pm

    Scot, thanks for the information. So basically the state is giving us less money, but expecting us to pay more into the pension fund?

    Lisa – I agree with Ram. Scot’s examples were very helpful. I’m not sure how you feel that is adding fuel to the fire. The taxpayers deserve the facts. In my opinion, the mis-information that keeps floating around is what adds fuel to the fire. I applaud Scot’s effort to give us the facts.

  6. Peter Kudlak permalink
    March 29, 2011 3:17 pm

    I think that including the example (with retirement figures included) was helpful. The public perception is that a teacher receives an exorbitant retirement amount. Maybe this will be a small step toward gaining additional support for our teachers.

  7. David Zimmer permalink
    April 1, 2011 12:41 am

    Mr. Graden,

    The tone of your comments imply that the pension projections and actual expenses were a surprise. I believe that in 2002, when you were the Facilitator, the Long Range Planning Committee provided a fifteen year projection, and Plante Moran also provided a similar projection, showing the projected pension rate increases that would happen between 2002 and 2015. As I recall the data, the actual expense rate is very consistent with these projections.

    The real question is now that the Saline School Leadership has kicked the can down the road for the past 10 years rather than addresssing this and similar challenges (that have been known for many years)) what is the constructive outcome that our leadership will achieve to ensure the academic standards of our community are maintained within the economic reality our community is facing?

    It is clear that ALL the leadership of our School District, Administration, The School Board and the SEA Leadership need to become partners for the best interest of the community.

    While it is great to refer to the pension rate, which you can not control, how about all those other recommendations you have received for the past 10 years to provide a highly competitive total compensation package, rather than the excessive package we have today given the level of our State Foundation.

    I belive many in the community would be very interested in learning what our leadership is doing to address costs you can control.

    When will you begin to discuss these matters?

  8. CSM permalink
    April 1, 2011 9:19 am

    So if both parties agree the system is broken and not working, why aren’t they/we working on different solutions? How and why do we all- the taxpayers and dissenting educators allow and people(politicians and union alike) with supposed concern for the future of education in Michigan- this continue? As we have seen in the corporate world, pensions are fading and becoming history, and that should be a wake up call for the state and the so called officials in Lansing. I agree with RAM, more pressure to this powerhungry union is needed so Michigan’s students and overall future is not sabotaged further.

  9. April 4, 2011 6:20 am

    Mr. Zimmer,

    I was one of the facilitators for the Long Range Planning Committee. That group met during the 2004-2005 school year and presented to Superintendent Sinicropi and the Board of Education in April, 2005. I don’t recall the pension projections and in a review of my files I don’t have any such documents. You are correct, working through the current budget issues will require the cooperation from all stakeholders – Board, administration, labor groups, and the community.


    I can’t say why neither party has offered a long term solution/reform plan for the current pension system. It is clear that the current system cannot sustain itself without significant adjustments.

  10. David Zimmer permalink
    April 5, 2011 9:08 am

    Yes you are correct, you will not find the topic of pension cost estimates within the final document that went to Sam, that is because after the working group laid out the profile, pulling from State of Michigan Budget Office projections and Plante and Moran projections, we determined that since that isssue was not within the ability of our school district to solve, it should not be part of the presentation. If you check your Plante Moran files for 1999 – 2005, you will find the information.

    Also Dr. Geltner had presentations at the High School on this topic as well, so we can clearly show that School Administration and our School Board have been aware of this issue for many years, and have ignored this trend when addressing our budget and reserve level for many years. So that it is now adding huge expense is not a surprise, just a confirmation of the work done many years ago.

    With a focus on what you can control, when will you discuss the stgructural disadvantage we have due to the excesssive provisions of our SEA contract? We pay 15% more than our peers at the start of a teacher career, pay 15% more than our peers at the top of the range, our step increases are double that of peer districts, our teachers pay nothing toward premium sharing, our supplimental pay is twice as rich as our peer districts and similar mattters. Our leadership is also aware of these facts and have been for many years as well.

    I would suggest that our School Administration and School Board focus on that which you can control, rather than trying to shift the focus to an area you can not control. It is not as comfortable to do so, but is the only way we can address the budget challenges we face. Isn’t 10 years of ignoring these matters long enough?

    Many of us in the district are looking forward to conversations and action plans based on these and similar locally controlled matters. When will these topic be part of the dialogue?

  11. April 6, 2011 10:18 am

    The administration and SEA leadership are currently discussing a variety of issues related our cost structure and budget – focused on the coming year. We will be conducting community budget forums in late April and early May to continue the conversation about the options available to address the budget.

    The post about the MPSERS pension program was in response to numerous questions about costs and how the system works.

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