Benefit change could help school budgets

September 27, 2009
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LANSING — Community colleges would save money in the public schools employee retirement system if a Senate bill passes, according to the bill’s sponsor, Sen. Wayne Kuipers, R-Holland.

The bill would give community college boards the option of providing a defined contribution plan instead of defined benefits, said Mike Hansen, president of Michigan Community College Association.

Laura Coleman, president of Bay de Noc Community College in Escanaba, said that the public school system “continues to cost the college a tremendous amount of money, because we pay so much into a system that many employees don’t even get benefits from.”

In a defined benefits system, employers and employees contribute a set percentage of salaries and know how much their benefits will be when they retire. Under a defined contribution system, both still pay in but the benefits will depend on investment results, according to House Fiscal Agency.

Under the proposed option, community colleges would save money because they would no longer have to make up for investment losses, said Hansen.

The union representing many community college faculty and other employees opposes Kuipers’ bill. Kerry Birmingham, a media relations specialist at the Michigan Education Association, said the change would jeopardize the financial stability of existing plans.

But Kuipers and Hansen said that taking so few people out of the state system would have little to no impact on its stability.

“If you took a bucket of water out of Lake Michigan, theoretically the water level goes down, but with such a small amount taken out at a time, you will hardly be able to notice. This idea works the same way,” said Hansen.

Community colleges account for less than 5 percent of the state program’s participants, so it would be a good way to move toward a contribution plan for all public school employees, Kuipers said.

“If we had additional money to put into this, it makes a lot of sense to do for the long-term stability of the educational retirement system,” he said.

Legislation to take all public school employees out of defined benefits plans has been unsuccessfully proposed before, Kuipers said, so now the focus is on community college employees.

Bay de Noc’s Coleman said state university employees were allowed to withdraw from the defined benefits system previously, so community college employees also should be given the choice. But MEA’s Birmingham warned that new community college employees would lose benefits under the switch.

“When you take away benefits from any employees, you’re going to have a harder time recruiting the best and the brightest to work at community colleges,” she said.

Hansen also stressed that local boards would be able to decide whether to enter the contribution system or stay in the current system.

“As the budget continues to deteriorate, we need to enact some kind of structural reform, and this could be it,” he said.

The bill is pending in the Senate Education Committee.

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