Dive Brief:
- Under a new pension deal meant to struck between Michigan Gov. Rick Snyder and Republican lawmakers Thursday intended to cut state costs, new hires will be automatically be enrolled into a 401(k) retirement plan similar to those available to state employees, reports The Monroe News. The option means that teachers will get an automatic 4% contribution to their plan, with employers matching the next 3% contributed.
- Teachers still have the option to select a blended pension plan within 75 days, however the compromised version of the blended pension option offered would actually require teachers to pay more than what they are paying now, which is 6.4% of their pay, reports The Oakland Press. If the plans dips below 85% funding level, teachers may see their 401(k) being shut down entirely.
- Pension plans have been a concern for many states and their budgets, so Michigan's push to enroll more teachers in a cost-saving retirement option is a safeguard against unfunded liabilities, which would benefit districts.
Dive Insight:
Pension plans have been difficult for states and districts with restricted budgets. For example, the school districts outside of Chicago have been dealing with a loss of $59 million in Title I funding, as the money has been diverted to cover pension payments. Though Illinois has one of the largest teacher retirement systems in the country, it also has been dealing with an increasing debt of around $100 billion as few teachers stay in the system — the impact of which falls on the heads of students who cannot get additional support from Title I resources. On one hand, greater employer contribution to an automatic 401(k) benefit may have an impact on teacher recruitment efforts, as institutions start having to account for extra costs; but on the other, the likelihood of Title I funding being diverted to cover underfunded pensions is reduced.
Michigan's automatic enrollment plan is an attempt to safeguard against potential buildup of billions of dollars in unfunded liabilities. Though the option in which teachers do not get to choose their contribution amount or end up having to pay more and risk losing their plan entirely is not immediately attractive, state lawmakers hope the plan will help keep teachers in the system, while also minimizing potential for debt. And at the same time the state will have to speak to concerns from educators that it will be able to allocate enough funds to cover the initial costs of the plan.
