Breaking News: House Vote Would Force Charter Schools Into Underfunded Pension System

Moments ago, the Michigan House of Representatives passed a bill that would force every charter school in the state to enroll its teachers in the underfunded and hugely expensive "defined benefits" pension system to which conventional public school employees belong. This year, conventional school districts are required to pay an amount equal to 16.94 percent of their payroll into this system, which promises its members lifetime monthly pension payments and health insurance upon their retirement. To deal with the increased cost pressures, next year school contributions to the system are expected to rise to 19 percent of payroll.

In contrast, as reported by Michigan Education Report, most of the 4,000 charter school teachers in Michigan currently have 401(k)-type "defined contribution" pensions, now the norm in the private sector. (According to the AFL-CIO, just 21 percent of private-sector workers have conventional pensions like school employees.) Around 30 percent of charter school teachers — those who are employed and paid directly by the local school district — are enrolled in the conventional schools' Michigan Public School Employees Retirement System.

Forcing teachers employed by charter schools to enroll in MPSERS could be ruinous to many of these schools, potentially forcing them to close their doors, according Gary Naeyaert, vice president of public relations and legislative affairs with the Michigan Association of Public School Academies. "The cost of bailing out this pension program could bankrupt charter schools and leave charter students and families without educational choices," said Nayaert in an e-mail sent earlier today.

The provision forcing charter employees into the regular school pension system is contained in the House-passed version of Senate Bill 1227, which would require school employees to contribute an additional 3 percent of their salaries to that pension system. The House version of the bill would earmark this additional revenue to paying for the current costs of retiree health benefits; the Senate version would have applied the money toward future system liabilities.

In return for the higher contributions, employees who retire this year would get a 13 percent boost in the cash portion of their monthly pension benefits. The version of the bill passed by the Senate contained no such multiplier, but was watered down in other ways from an earlier draft that had been advancing but was stopped by objections from several Republican senators. (An April 2 Michigan Capitol Confidential report contains much more detail on that development.)

Gov. Jennifer Granholm has recommended a 6.6 percent "early-out" pension enhancement, and a slightly less generous system for school employees hired in the future. The House bill would instead enroll future hires in the current and more generous system, increasing the growth of its liabilities.

More background information on this story can be found in Michigan Education Report stories, "Bill would put all charter teachers into state retirement system" and "Retirement fund losses will cost schools, but how much?" 

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