New Teacher’s 'Hybrid' Pension Label a Phony Political Confection

Last spring, the Legislature adopted a largely-gutted version of a modest school employee pension reform proposed by Gov. Jennifer Granholm in January. One of its features is what the governor and her speechwriters labeled a "hybrid" retirement plan for newly hired teachers, one that supposedly falls midway between a traditional "defined-benefit" pension and the modern "defined-contribution" or 401(k)-type plans.

The term "hybrid" is bogus. It's a political label, not anything real.

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It's just like "a little bit pregnant": There's no such thing — either a woman is pregnant or she's not. Period, end of story.

Michigan's retirement plan for new teachers is fully pregnant with a defined-benefit pension plan that piles new liabilities onto taxpayers. Tacking on the extra added benefit of a new taxpayer-contribution into a 401(k) type account for these employees doesn't change this reality.

Not that the new defined-benefit system isn't an improvement over the one that still applies to current school employees. It raises to 60 the age at which retirees collect monthly pension checks, compared to the current age of either 55, or no minimum for many school employees with 30 years on the job. It also slightly lowers the basis on which the pension is calculated, cancels for the new guys some other gimmicks that current employees can still use to boost benefits, and eliminates post-retirement cost-of-living increases. These reforms will save taxpayers' money.

Still, hardly any new private sector workers get defined-benefit pensions anymore. For the most part there is only one class of employees who still do: government and school employees.

(Interestingly, that does not apply to Michigan state employees hired since 1997, who all are in a real defined-contribution system, not a phony "hybrid." At the time, Gov. John Engler tried to get this for school employees also, but was defeated by the MEA union's political clout in Republican legislators' districts.)