Washtenaw Community College will face financial crisis if proper actions are not taken
Washtenaw Community College will be taking an inventive approach if it pulls its part-time lecturers out of the state school pension system by converting them to contract employees.
The move makes sense. The current pension arrangement is a bad deal for the college and its employees, forcing both to pay into a system for retirement benefits that these workers are unlikely to ever collect.
But even if WCC can get these employees out of the system, that’s not the end of its problems with the state pension plan. It’s only the beginning.
The Michigan Public School Employee Retirement System, which covers more than 170,000 retires and some 275,000 current employees of public schools and colleges across the state, is alarmingly underfunded. Simply put, the state has promised generous pension benefits to current and future retirees that it doesn’t have the money to pay. This underfunded liability is already sapping the budgets of schools and colleges, and left unaddressed, it’s going to become a full-blown fiscal crisis for the entire state.
For now, though, WCC President Larry Whitworth would like to start by easing the burden created by having nearly 1,000 part-time lecturers included in the state pension system.
These employees are compelled to contribute 3 percent of their income into the system - and that will increase to 6 percent this fall. The college, meanwhile, contributes 19.4 percent of their income into the state fund. But these part-time employees have little or no chance of ever meeting the requirements to become vested and collect benefits.
The solution? Whitworth is proposing to turn these workers into contract employees. This move would avoid either them or WCC having to pay into state pension system on their behalf. Whitworth estimates the college would save $1 million in the first year.
But even if the WCC board approves this creative approach, the college still is in danger of being eaten alive by the costs of the state pension system. In 2001-2002, WCC paid $3.3 million into the system to help the state meet its retirement obligations. This fiscal year, it will pay $9.8 million into the system.
Over that same period, state aid to the college has fallen from $12.9 million to $11.8 million. That means that of the dollars it gets from the state, WCC is now sending 83 percent of that money right back to Lansing to cover pension costs, rather than spending on educating students. Given the trend, it is quite possible that this pension contribution will eventually exceed what WCC gets in state aid.
Something has got to give. Education employees vested in the pension system receive retirement benefits more generous than are found in the private sector these days. The state web site boasts that MPSERS members get “one of the best public pensions around.’’
How can the state afford such benefits? The answer is, it can’t. The pension fund is in serious trouble. Since 2008, the assets of the pension fund have lost $14 billion in market value. According to the state Bureau of Investments, the fund is now 20 percent short of what it needs to cover its liabilities based on actuarial value.
The system operates on a pay-as-you go basis. Current employees - and their employers - pay into the system to help cover the costs of benefits being paid to retirees. In fiscal 2009, employers and employees statewide paid $1.4 billion into the system, while the system paid out $3.3 billion to current retirees. You don’t have to be a CPA to understand that this can’t continue - or to understand that the coming crisis can’t be solved on the backs of employers and employees by forcing them pour more money into the system. They can’t afford it.
This is not a crisis that should sneak up on anyone. The underfunding of public pensions already has become a major issue elsewhere. This spring, Illinois was forced by borrow $3.7 billion to make a required payment into its pension system.
It’s going to take radical, dramatic action by our leaders in Lansing to deal with the impending crisis here. Unless they can identify a source for billions of dollars in additional funding (which we don’t imagine they can), then they are going to have to reassess retirement benefits for public employees covered by MPSERS.
Already, many state employees have been moved from a defined benefit system to a defined contribution system. Legislation currently in the state Senate would remove community college employees from the school retirement system. Whitworth supports that approach. He says community college presidents have concluded that they must become more vocal on this issue, because their financial health is greatly at stake.
For now, WCC is looking at one small step to begin relieving itself of a financial burden that neither it nor the state can afford. But the far greater concern is the coming crisis posed by the underfunding of the pension system. The longer this issue goes unaddressed in Lansing, the more painful the solutions will be.
Comments
YpsiLivin
Mon, Aug 9, 2010 : 11:05 p.m.
Heardoc, You do a great disservice when you complain about WCC trustees like Mark Freeman. Mark Freeman was the only WCC trustee who had enough sense not to participate in the now-infamous nearly-$10,000 board junket. Mr. Freeman was there for the business portion of the retreat and wisely stayed away from the $4,000 dinner and overnight hotel stay. To me, his inexperience is far more palatable than the offensive and out-of-touch culture of entitlement that has taken hold of his far more experienced fellow board members, and causes them to complain about the quality of a taxpayer-funded $4,000 dinner. I'll gladly trade you a Rutledge, a McKnight-Morton and a Landau for another Freeman any day of the week. Just so you know, many of the WCC employees in MPSERS are not union employees. The people who were left in MPSERS are typically the lower-paid hourly employees. Some are unionized - like the custodial staff, the maintenance workers, security and secretaries. Others have no union representation at all. They're the hourly techs and clerks who don't make a lot to begin with. The high-paid executives and full-time faculty members were offered the opportunity to switch out of MPSERS and into a 401(k) plan years ago, while the lowest paid employees were forced to remain in the pension plan. These low-scale workers (and not the $100,000+ crowd) are the people you're advocating pulling the rug out from under. No union made the decision to stay in the pension plan; that was decided by the college administration to comply with the state law that requires the college to participate in MPSERS. Go ahead and hate unions as much as you want for whatever reasons you can come up with, but you're hating in the wrong direction on this one.
Heardoc
Mon, Aug 9, 2010 : 9:20 a.m.
Many states - New jersey in particular -- are now forcing public employees and their unions to take less money. I hope the system goes bankrupt so that these contracts with the unions are broken and the pay scale is more realistic and comparable to the private sector. Rate of tuition increase has far outpaced inflation over the past ten years (and maybe longer). I also think that the board at WCC is at fault there --they have some very inexperienced people on the board like Freeman. This guy never held a job before and lives at home -- never on his own. This is crazy! Can all of the union types quit trying to tell the rest of us how tough it is on you! Quit whining!
averagetaxpayer
Sun, Aug 8, 2010 : 6:07 p.m.
@ Ghost re: golf course I agree it was unfortunate WCC didn't acquire the golf course property. While at it they should also have bought a tax-paying restaurant for their culinary arts program, maybe a tax-paying radio or tv station for their communications program. How about another health club or two since they now know the business? Acquire, remove from the tax rolls, and they should have no problem competing with the private sector. Probably even run a few out of business given no property tax burden. Good Night...
AlphaAlpha
Sun, Aug 8, 2010 : 4:35 p.m.
Cash - You are absolutely 100% correct. These misleaders should be ashamed. Many have been forecasting this predicament for years - don't let them tell you 'no one saw it coming'. To regain the earned title of leader, the should lead by example. Good call.
stunhsif
Sun, Aug 8, 2010 : 4:33 p.m.
Cash, Totally agree that administrators need their pay cut more than the teachers because their compensation packages are ridiculous. The top 7 listed in a different article all made close to or more than 200K. That is another reason we need to reduce the number of school districts so the number of admin positions can be cut.
Cash
Sun, Aug 8, 2010 : 3:19 p.m.
@AlphaAlpha, That's great but how about starting with the highest paid administrators to lead by example?
AlphaAlpha
Sun, Aug 8, 2010 : 2:39 p.m.
It would be interesting to see the WCC budget. It's likely their biggest expense is labor. If true, WCC may need an approach hitherto unheard of in the college sector: cut pay.
AlphaAlpha
Sun, Aug 8, 2010 : 2:29 p.m.
Eddie G - It seems you missed this on the other WCC thread, so here's a partial pasting answering your concerns. (Btw, you might want to scale back on the "they lied" theme...not original...) Here's a bit describing the process. It's been done many many times... "Current retirees will generally be quite unaffected by the switch to defined contribution plans. If you are in that category, relax. It's the enormous future burden of new retirees, which will bankrupt many municipalities, which needs to be addressed. The current employees? Thankfully, your concerns are easily addressed. The concept of pension buyouts has existed in various forms for many years; there are time tested, mutually agreeable, FASB approved formulas which account for the present value of a future receivables (i.e., so each worker gets their fair share). With these formulas, which would be mostly be mutually agreed upon by worker and employer, employees are given an amount of money now, which would then grow with time to be used for their own pension; additional pension contributions would be the employee's responsibility going forward. Obviously the implied rate of return will be negotiable, and likely contentious, and it will vary according to many variables such as a municipality's (ahem) promised pension, and, importantly, a municipality's future ability to pay, based upon other variables such as how much population growth or shrinkage there may be. The bottom line is: there already exist time tested and fair methods of converting from defined benefit to defined contribution plans.
Cash
Sun, Aug 8, 2010 : 1:14 p.m.
ERMG, I'm aware of that offer....I'm also aware that this is a heavily taxpayer-subsidized community college not a private institution. You are assuming a lot by saying that the deal made economic sense. I strongly disagree. I have witnessed too often when a school loses it's grip on the realities of 1. economy of the area 2. it's own budget issues 3. it's core purpose, that the school suffers, the public (taxpayers) suffer and worst of all, the students suffer. Taxpayers cannot continue to approve blindly the WCC millage. It's time to get tough with WCC. Define your purpose and stick with it. Take cuts at the top and lead by example. Or accept the fact that taxpayers aren't going to continue the flow of hard-earned funds.
YpsiLivin
Sun, Aug 8, 2010 : 1:07 p.m.
ERMG said: Ypsi: I'm pretty certain you are wrong, though I wouldn't bet a paycheck on it. A member of my household (employed full-time) was forced to stay in MPSERS based on job classification. As such, I am 100% certain that I am not wrong; however, if your paycheck is still in play, I'll entertain your offer. The ability to switch to ORP was offered only to personnel above a certain classification (i.e.. the salaried crowd and professional faculty); the hourly, non-bargained employees were not given the choice to remain or switch.
Speechless
Sun, Aug 8, 2010 : 9:56 a.m.
In this country, pension plans have always played the role of an economic 'hack' to help people survive in their retirement years, given that federal social security is designed to offer only supplemental support, not personal self-sufficiency. As a result, union members, trained professionals, and others who could apply market pressure on employers all sought over the years to build retirement benefits into employment agreements. In recent times, that economic hack has steadily begun to erode. Pension-related budget travails at WCC and in Lansing are mirrored across the U.S., as these kinds of arrangements falter along with the financial markets. While lifetime low-end workers in this country have long been forced to get by with only social security checks as guaranteed retirement income, now white collar and union employees increasingly face that same fate. At the same time, it's becoming much harder to retire with a large savings account. One silver lining amid these growing pension-related crises, of which WCC's is just one example, is that they will build long-term public support for making the shift to a bona fide national pension system — at long last — like those existing in developed, industrialized nations elsewhere on the globe. In these other countries, the provision of full pension support, in combination with universal health care and mass transit options, provides senior citizens with a social system intended to meet their basic needs. As a result, seniors can direct personal savings toward goals and items other than daily survival.
YpsiLivin
Sun, Aug 8, 2010 : 8:55 a.m.
ERMG, Not all employees at WCC were given the opportunity to participate in ORP. Based on their job classifications, some employees were required to remain in the MPSERS plan.
Cash
Sun, Aug 8, 2010 : 7:55 a.m.
As long as all compensation, including administrators (see the Ann Arbor Public Schools salary scale for their administrators) is considered, I would agree. Now, as always administrators will say that there isn't enough cost savings cutting their salaries. Well, it's a start, isn't it? They need to look at all expenses, including their $4000 meals and speculating at buying golf courses. Spend wisely in all areas. When you look at your budget, don't just look at one mass line item...look at all line items and make fair cuts to all. It is time for all to take cuts and starting with the administrators who should be setting the example as leaders, would be a good start. Start by putting students first. Make students the most important people at WCC. A good start would be the shuttle plan. When you get the shuttle plan rolling, have all administrators and staff park in that lot and take the shuttle. Set a good example for the students. That would show taxpayers and students that you truly are willing to make sacrifice. Then cut the administrators salary and benefits first! Sometimes to make change you need to turn things upside down.
stunhsif
Sun, Aug 8, 2010 : 7:19 a.m.
Great article. Look forward to the spin the union posters will put on these facts. Public employee compensation packages need to mirror the private sector sooner rather than later. Good Day No Luck Needed