Schools Buying Bigger Pension Payouts for Employees
Providing a perk that the State of Michigan says other public employees don’t receive, public school districts are spending millions of dollars each year buying “years of service” for employees that will boost annual pensions.
For example, Adrian Public Schools spent a total of $171,330 buying additional years of service for four teachers in 2009.
Adrian Superintendent Chris Timmis pointed to the Adrian teachers’ contract that stipulates the school must buy the years of service. Timmis wrote in an e-mail that many other districts had similar contract language.
But it’s not just rank-and-file teachers taking advantage of getting years tacked on to their pension calculation at the school’s expense. Kentwood Public Schools bought years of service for three of its assistant superintendents in 2009, at a combined cost of about $66,500. School records show that the district also spent $8,592 to purchase retirement credits for Superintendent Scott Palczewski. His salary was $184,074 in 2009.
Palczewski didn’t respond to a message left at his office.
Adrian and Kentwood could have spent more in 2009 purchasing years of service. School documents listed only those employees who had six-figure compensation.
State employees – a classification that includes school district workers – can purchase up to five years worth of service, according State of Michigan Spokesman Kurt Weiss. But only school district employees are given the perk of having their employer – the school district – pay for those extra years of credit.
“Definitely unique to schools…the state doesn’t buy years of service,” Weiss wrote in an e-mail.
One year of service costs anywhere from 16.8 to 20.5 percent of the annual salary, depending on the age of the employee and the years of service. For example, one year of service would cost 20.5 percent of a 55-year-old teacher’s salary if that employee had more than 20 years of service. If the school employee earned $100,000 a year, one year of service would cost the district $20,500.
One year of service can mean as much as an additional $1,500 per year in pension payments for a school employee that made $100,000 and worked for 30 years or more.
Schools could be doing this to move out higher compensated senior teachers and then replace them with younger, less expensive replacements, according to Michael Van Beek, the director of education policy of the Mackinac Center for Public Policy.
“I guess they might figure that the amount they pay up front will eventually save them if it means these employees will retire faster. Then they’ll be able to hire a much less expensive teacher (both in terms of salary and contributions to the retirement system),” Van Beek wrote in an e-mail.
Van Beek said the public school retirement system is managed by the state and its costs are equally dispersed among all districts. That means schools buying the extra years of service can offload most of the bigger pension costs they are helping those employees receive in retirement.
“Districts would probably be less likely to boost their employees’ pensions through buying service credits if they were directly responsible for the long-term liabilities attached to this form of extra compensation,” Van Beek wrote.
Doug Pratt, spokesman for the Michigan Education Association, didn’t return an e-mail seeking comment.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.