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Retiree Network News

Articles from the AFT Michigan Forum

Issue Volume 62 No. 5, June/August 2003

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The Future of Michigan's Retirement System
by John Olekszyk
Chair, MFT&SRP Retiree Network

The June 2003, issue of the "American Teacher" carried an interesting article about the looming crisis within the Ohio State School Retirement System. Increasing costs and losses of investment income prompted the Ohio retirement system to implement major changes in the retirees benefit plan. The board tacked on additional increases in co-pays and deductibles for the current year to offset some of the shortfall. They also recommended that new retirees be required to pay 100% of their own and dependent premium costs until they reach the age of 60. Their projected plan is to gradually eliminate all state paid premiums for retiree spouses and dependents. Public school employees in Ohio are organizing to challenge these changes.

School employee pension plans are being pressured by a variety of changes. Substantial losses in stock investments have been a major factor in many retirement plans including Michigan's. The desire to offset budget deficits by reducing the state's contribution to the system is another factor. The increased number of "baby boomer" retirees entering the systems has spiked pension and benefit outlays. More "new" teachers in the system means lower salary levels and less income to the retirement bureaus. The gradual loss of teachers with the rise of charter schools also has reduced the "income flow." Increased longevity of our retirees as well as the annual double digit increases in medical cost and prescription drugs have continued to exceed actuarial projections.

In Michigan we have already faced the prospect of a Graded Premium System for several years and under Gov. Engler we saw a concerted effort get the state out of the pension plan by creating a Defined Contribution System. Both of these efforts were resisted and turned aside by the efforts of retirees, public school employees and organizations such as the RCC (Retirement Coordinating Council).

But our pension system continues to come under attack by those who claim that we cannot afford our current plan and by those who wish to reduce the role of the state in providing a pension benefit program for public school retirees. In January of 2004, the latest change by the MPSERS Board will go into effect. Because of an annual shortfall of $37 million for those retirees who have purchased service time, it will become far more expensive to buy time in order to reach the goal of 30 and out. The Board voted to change the formula for the purchase of universal service time, which will substantially increase the cost of service time for most employees. Purchasers will also be required to pay an additional 8% interest on the unpaid balance of their purchase and there will be new limitations on what salary can be used as the basis for the purchase. The MPSERS Board has discussed or will consider a number of proposals to limit or restrict insurance benefits because of the increased costs in this area. They may well include the elimination of spousal and dependent coverage. Non-payment of insurance premiums for any time purchased and the reintroduction of the Graded Premium plan. Although these efforts will be of great concern to future retirees, it should be of concern to all current retirees. The MFT&SRP Retiree Network will keep retirees advised of those changes that will impact our pension plan and will work with the MFT&SRP, the RCC and other organizations to make sure that retiree concerns are addressed. We are also available to local unions to discuss these issues and concerns as they relate to the retirement system.

Current employees working within all classifications and public school retirees need to become involved in this effort. We encourage all of you to become knowledgeable in what is going on within MPSERS. Contact your local union and/or retiree chapter and encourage them to become activists in this effort. Go to our web site, www.retirees.mftsrp.org, to sign-up for the Retiree Electronic Network to receive regular e-mail bulletins on these issues. Our current retirement system is the basic financial foundation for those years all of you and your families plan to enjoy after your service in the public schools system. That foundation needs to be protected.

Want to Retire Sooner?
Change in the Service Credit Purchase Program
by Ellen Hoekstra, Capitol Services, Inc.

Many school employees choose to purchase service credits to enable them to retire earlier or to increase the size of their pensions. For many people, purchasing service credits is part of their retirement planning and investing. The Michigan Public School Employees' Retirement System (MPSERS) has recently approved a series of changes to the purchase of retirement service credit purchases. The new changes will take place on January 1, 2004. Members considering purchasing service credits should review the relative value to them of purchasing them prior to January 1 or waiting until afterwards. Although in the majority of cases, the purchase costs will be less prior to the changes being implemented, the new changes will actually reduce purchase costs for some members.

The new changes will be as follows:
1.The Variable Percentage Buy-In Table will change. This table is used to determine the cost of actuarially based service credit purchases, which include the universal buy-in, maternity/paternity/child rearing, and nonpublic educational employment. Although the new table will make service credit purchases more expensive for many employees, it actually reduces the cost of service credit purchases for members who are 41 or older with relatively few years of service.

2.Tax-deferred Payment agreements begun after December 31, 2003 will be charged 8% interest. Existing agreements remain in force. Members who are not purchasing service credits with a lump sum payment will want to look very closely at how this change will affect their costs. 3.All buy-ins that use earnings in the calculation require that wages were reported to the Michigan Public School Employees Retirement system during the previous fiscal year (July 1-June 30). An employee with no reported wages from the immediately preceding fiscal year will be required to wait until the start of the next fiscal year to apply and be billed for the purchase. These changes were made by the Michigan Public School Employee Retirement Board in compliance with a state law that requires service credit costs to be reviewed by an independent actuary periodically to confirm that the cost of service credit purchases will support the cost of the retirement benefits provided.

Members should consider the question of whether and when to purchase service credits very carefully and should review the additional information available at http://www.michigan.gov/ors. From that site, click on the box in the left hand column for the School Employees Retirement System. This will take you to a website with several sources of information about service credit purchases, the most recent being the July 2003 Notice of Service Credit Cost Changes.