Washtenaw Community College considers converting part-time faculty to contract employees to avoid state pension contribution
Washtenaw Community College President Larry Whitworth has been campaigning for a change in Lansing that would allow new community college employees to opt out of the state’s ailing public school employee retirement system.
The roughly $35 billion retirement system that enrolls about 450,000 Michigan working and retired public school employees has lost $12.9 billion since early 2008.
“It’s a matter of being fiscally responsible,” Whitworth said. “This plan is based on the notion that people are incapable of managing their own resources.”
WCC President Larry Whitworth
Whitworth wants new employees out of the old system and into a defined contribution plan similar to institutions like the University of Michigan.
The state constitution requires that community colleges offer a state retirement plan to all employees who are eligible, but a bill pending in the state Senate could change that.
And Whitworth isn’t waiting around for the Legislature - he’s also floating another idea.
He’d like the Board of Trustees to consider removing around 1,100 part-time employees from its payroll and rehiring them as contract employees, a move that would save around $1 million a year.
Pending board approval, about 400 part-time non-credit faculty and some low-level part-time employees would be removed from the WCC payroll. They would essentially be fired and re-hired as contract employees by a private temp firm hired by WCC.
“There’s no reason for the college to participate in a retirement program for someone teaching 15 hours a semester of banjo,” Whitworth said.
Those employees wouldn’t lose retirement benefits because they’d never become vested and collect them, Whitworth said. They don’t receive health benefits currently, either.
If that plan worked, about 700 part-time faculty teaching for-credit courses could go the same route.
The current system
WCC will contribute $9.8 million to the Michigan Public School Employees’ Retirement System this year, compared to about $3 million a decade ago.
Beginning this fall, employees eligible for MPSERS will have to double their retirement contribution to 6 percent, while WCC will pay 19.4 percent into the system.
The state will award WCC an $11.8 million appropriation for the college’s operational costs this year, almost a wash in the face of rising retirement costs, Whitworth said.
A large part of that increasing contribution to MPSERS is attributable to the rising “unfunded liability”- a gap between what the state has actually saved and what it has to pay out to retirees. That number stood at about $12 billion in late 2009.
“They simply bill us for this unfunded liability,” Whitworth said.
The proposed changes
Whitworth testified in favor of Senate Bill 802 at a Senate Education Committee meeting in March. The bill would allow community colleges to enroll new employees into defined contribution accounts, the way the state’s 15 public universities already can.
It wouldn’t apply to existing employees already in the state retirement system, billed on its website as “one of the best public pensions around.”
Whitworth said he expects plenty of opposition as the bill moves forward. Early indications are that he’ll get it.
Brit Satchwell, president of the Ann Arbor Education Association, the teachers union for Ann Arbor Public Schools, said he opposes the bill.
If community colleges pay less, the state’s K-12 districts would pay more, Satchwell and state teachers union officials said.
“I’m not in favor of them throwing those employees in front of the shifting winds of the stock market when it comes to their retirement,” Satchwell said. “They can’t have it both ways.”
At a March 4 hearing of the Senate Education Committee, eight organizations sent representatives to oppose the bill. Two groups showed up to support it.
But the bill, sponsored by State Sen. Wayne Kuipers, D-Holland, moved forward.
A partner bill is being drafted for the House of Representatives by State Rep. John Walsh, R-Livonia. The measure needs approval from the full Legislature before becoming law.
Chuck Agerstrand, the retirement consultant for the Michigan Education Association, the statewide teachers union, said he will fight the legislation on behalf of his organization.
“Community colleges would like to get out of the pension system, and they would like the remaining plan participants to basically be burdened with their share of the costs,” Agerstrand said.
He acknowledged the retirement system doesn’t have the money to support participants and said the “treasurer can and should do a better job” at managing the fund.
Whitworth called the state’s defined benefit program “paternalistic.”
“Unfortunately, under the MPSERS system, the state is just as bad at investing this money as the employees are, maybe worse,” he said. “Consequently, they lost the money.”
Juliana Keeping is a higher education reporter for AnnArbor.com. Reach her at julianakeeping@annarbor.com or 734-623-2528. Follow Juliana Keeping on Twitter
Comments
Doug Gross
Thu, Sep 2, 2010 : 4:12 p.m.
Larry has done a nice job of defining the issues here. Clearly based on the comments there are some that understand the issues very well, others that do not, pensions are very complex. Readers that want more information on the issues should go to the Public Employee Benefit Reform Council of Michigan's website. WWW.PEBRC.ORG. We are with Larry, reform must happen, we need to make a choice, have a lot of retiree's who we pay very well while we are bankrupt (The GM Model) or have more employees at work and give more modest retirement benefits. I'd rather see our children get jobs! Doug Gross, President PEBRC
krc
Tue, Aug 10, 2010 : 7:32 a.m.
Hey, y'all....this is FRIDAY'S PAPER. Today is Tuesday. What gives?
stunhsif
Mon, Aug 9, 2010 : 4:50 p.m.
@WilliamCampbell, thanks for clarifying where you stand, I will make certain that I do not vote for you. Quit wasting time Larry and get this done asap!
William Campbell
Mon, Aug 9, 2010 : 1:45 p.m.
I am all for the college saving money. As a part-time instructor, my concern is that moving to a contract system will further alienate part-time faculty from the academic system. The college needs to invest in improving and motivating part-time faculty. After all they are responsible for teaching the majority of contact hours at the collage. As a part-time instructor I spent my own money to match the computer equipment provided to my full-time mentor. The additional equipment allowed me to post class documents on the Web for students to review after class. I found it worth the investment because many students found it helpful. This is just one example of how parity with full-time faculty will result in improving the educational process. My concern is that this will end with the rich getting richer and the poor getting poorer. Will the saved money be used to finance Larry Whitworths next $12,000 salary increase? Will it be used to fund the next $10,000 retreat for the board? Will the college further upgrade equipment provided to full-time faculty, widening the gap with part-time faculty? We need to view part-time faculty as a valued asset that is worth investing in with dividends paid directly to students. Currently the entire system of evaluating faculty is done by tabulating Student Opinion Questionnaires. The college needs to invest in a system of evaluating and improving part-time faculty in addition to tabulating student opinions. We need to direct efforts toward monitoring testing methods and content in order to ensure that students are adequately prepared for further education. We must get the administration and full-time faculty involved in evaluating and improving part-time faculty who currently teach more contact hours than full-time faculty. A balanced approach of including normative data, administrative and peer opinions in addition to student opinions is necessary for an adequate evaluation of faculty. Dividends paid in improvements to the educational system are well worth the investment of effort and money. William Campbell Candidate for WCC Trustee
leaguebus
Mon, Aug 9, 2010 : 10:36 a.m.
Hey Mikey, all the large parking lots at WCC are full. WCC's enrollment is way up and they need more parking, it's as simple as that. They have been very successful at providing an education that people are asking for at a fair price, hence the need for a parking structure. More power to them! Edward, its easy for others to be callous when they don't have a large chunk of their retirement in the State system. I agree with you, promises are promises. They need to find a way to move people to TIAA and keep the funding going for the people left.
YpsiLivin
Mon, Aug 9, 2010 : 7:15 a.m.
Please note that the "Public Employee Benefit Reform Council" has Larry Whitworth on its Advisory Council. This group is simply advancing Whitworth's political agenda.
Cyclezealot
Mon, Aug 9, 2010 : 2:18 a.m.
I have no idea what the projections were for how MSPERS would be funded when it was created; no idea what the projections were when it was changed over the years; no idea what the actuarial tables were and how they've changed over the last 40 or so years. From Robert.. Seems reasonable..If you really want to understand the issues go to our website. www.pebrc.org/ We are the Public Employee Benefit Reform Council. Doug Gross, President
YpsiLivin
Sun, Aug 8, 2010 : 1:52 p.m.
AlphaAlpha, Your valuation approach is too simplistic. Yes, pensions can be valued, but along with the pension are benefits that have no defined-contribution analog, such as health care coverage and survivors' benefits. What will the value of those be 20-30 years from now? Public pensions are not taxable as income by the State of Michigan or its cities, but 401K distributions are. What's the "current market value" of that? Pension valuation involves much more than just calculating the fair market value of gains and losses on employee contributions.
YpsiLivin
Sun, Aug 8, 2010 : 1:33 p.m.
So what's the impact of the 12,000+ people who were just "incented" to retire from the public payroll? (And if Granny had gotten her way it would have been more like 30,000.) These people are now collecting (at a bonus rate, I might add) from an ill-managed, historically underfunded pension system. Once again, the illuminati in Lansing have merely robbed Peter to pay Paul.
mw
Sun, Aug 8, 2010 : 11:03 a.m.
So because promises were broken to you, I guess it's OK to break your promises. I'm saying that both social security and public employee pensions are obligations of the government, and I see no moral reason for cutting back on social security (and lots of other things besides) in order to make sure we pay every penny to the pensioners -- especially because those pensioners already have a MUCH sweeter deal.
Mikey2u
Sun, Aug 8, 2010 : 10:12 a.m.
Whitworth wants to pour money into usless building programs (parking structure) and cut funding for teachers. Isn't this what Willow Run did?
Craig Lounsbury
Sun, Aug 8, 2010 : 6:40 a.m.
"So because promises were broken to you, I guess it's OK to break your promises." If I "promise" my out of town pal he can stay at my house when he comes to town for the big game, then my house burns down the week before the big game I suppose you could say I broke my promise.
Cyclezealot
Sun, Aug 8, 2010 : 2:17 a.m.
Inside the Hall. You are socialism obsessed to the point of being closed minded.. Countries like Canada have a sufficiently funded National Pension plan. 401 K' are nothing more than a tax dodge for the rich, while the world of 401 K's will result in half of the American population living in poverty thanks to declining disposable income. If that the world you want, better stock up on your arms cache and stay awake at night.
AlphaAlpha
Sat, Aug 7, 2010 : 8:40 p.m.
MW - Thanks for the NYT link about the coming pension wars. And thanks for the quotable quote just above. Succinct. RobertinSaline - Perhaps you could write a piece for A2.com on the pension issue? It would likely make a useful addition to the discussion. Including your references will be most helpful for coming discussions... Good luck.
AlphaAlpha
Sat, Aug 7, 2010 : 8:17 p.m.
"But there are no laws to hold politicians to the same standards that private companies are held to, so state pension funds are in much worse shape." Well put. Classic, true statement. Perfect. Public employees cheating other public employees...legally. Touche.
mw
Sat, Aug 7, 2010 : 7:17 p.m.
I have no idea what the projections were for how MSPERS would be funded when it was created; no idea what the projections were when it was changed over the years; no idea what the actuarial tables were and how they've changed over the last 40 or so years. The point is that the social security system was designed to pay benefits to retirees from taxes paid by younger workers. The first SS recipients paid into the system very briefly and collected as long as they lived. Legally, pensions don't work that way -- they are supposed to be funded by contributions made by (and for) the workers during their working lives, these monies are supposed to be saved and invested and then ultimately used to pay benefits. Which is why, if a company goes out of business (with no new workers contributing), there is supposed to be enough money in the pension fund to provide for the retirees. That is a;sp the way public employee union pensions are supposed to work. But there are no laws to hold politicians to the same standards that private companies are held to, so state pension funds are in much worse shape. I guess a promise really isn't a promise, especially when it comes to public employees. Should those promises be more sacred than the promises to the rest of us to be able to start collecting social security? My parents were eligible for full benefits at 65. Right now, people my age aren't eligible until 67 -- and it'll almost certainly be higher before I get there. Just how many sacrifices do you think other Michigan citizens should make so teachers, police, and firefighters can remain eligible to retire at 55?
Craig Lounsbury
Sat, Aug 7, 2010 : 5:02 p.m.
when social security was started the average life expectancy was less than 60 years. When my dad who died at the age of 85 was born in 1918 his life expectancy was around 56 years. people who had made it to the age of 10 back then had an expectancy of hitting 64. When i was born in 1952 my life expectancy was around 64. We as a society have not faced the fact that people are living a whole lot longer than they used to. Retirement plans, be they social security or other private and public funded, worked a whole lot better in the "good old days" because people just plain dropped dead before they could collect much.
AlphaAlpha
Sat, Aug 7, 2010 : 4:39 p.m.
"So, in other words, you're fine with the state (in our name) breaking the promise it made (in our name). I guess a promise really isn't a promise, especially when it comes to public employees." Ouch. Two for two, Edward. You are correct: a promise is not a promise. But guess what? There were promises made by the state to many more folks than just the public employees, the private sector workers are going to be, um, disadvantaged as well. It's already happening, and it will become more pronounced. Fewer government benefits for all. Welcome to the new era-of austerity. So, don't take it personally. It's not just civil employees, it's all workers. In fact, as we've discussed, you and your peers in the government will likely continue getting the better end of the compensation deal for many years to come; devolving from a higher level. But that's another story... The only folks who won't be paying more and getting less are those who are not paying anything at all, and even they will also get less. And they, too, will likely be saying, "But, they promised..." Politicians will find scapegoats; it's approximately never their fault...
AlphaAlpha
Sat, Aug 7, 2010 : 4:06 p.m.
Edward G highlights some excellent points: Yes, the defined benefit plans will likely be ending, and likely within just the next few years. Based on historical analogies, the economy is likely to worsen before improving, and during that time, folks will be questioning expenses like at no time since the 1930s. The change to defined benefit plans will not be difficult. 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 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. You are right, we need to make this happen, and soon. Our various government leaders have obligated the public to financial obligations which they simply will not be able to fulfill. The sooner we switch, the better. Also, sooner is better, because if a municipal bankruptcy judge makes the decisions, it's likely that fewer parties would be content with the agreement.
gas1951
Sat, Aug 7, 2010 : 3:59 p.m.
Kuipers is a republican. Please check you facts.
Macabre Sunset
Sat, Aug 7, 2010 : 3:39 p.m.
It's not my world, zealot. It's the world created by guaranteeing lottery money to public employees. We simply cannot afford those entitlements. I think what will happen is that our country will eventually go through a bankruptcy when China decides it's no longer to its advantage to prop up our massive deficit. That will wipe out everyone's savings as we'll have, essentially, hyperinflation. In other words, those of us who are trying to save because we don't see how Social Security can remain solvent will end up paying for everyone else anyway. Instead of a safety net, our government is trying to put up giant safety mattresses and the entire country is being crushed under all the excess weight.
xmo
Sat, Aug 7, 2010 : 3:37 p.m.
See what happens when the Government runs something, it costs alot more and you get a lot less! I can hardly wait for Obama care! Whitworth called the states defined benefit program paternalistic. Unfortunately, under the MPSERS system, the state is just as bad at investing this money as the employees are, maybe worse, he said. Consequently, they lost the money.
mw
Sat, Aug 7, 2010 : 2:55 p.m.
It's clear to anyone who is even semi-logical that the era of defined benefit pensions for public employees must end. That said, some questions... What to do? 1. Stop making the hole bigger. Immediately end defined-benefit plans for all new employees. New hires get 401Ks. 2. Pensions are not intended to be Ponzi schemes like social security -- they are supposed to be pre-funded. Payments from retirees are not supposed to come from current contributions. It only looks like it works that way because the public pension systems have been grossly underfunded (in a way that would be illegal for private companies) by irresponsible politicians who loved to make big promises to public union supporters and also loved to make unrealistic assumptions about investment gains so they could then spend 'excess' pension funds on pet projects. As a result, we are going to spend years, maybe decades, paying to fill in that massive hole, but... 3. Retirees and those about to retire are going to have to make some sacrifices too -- the same kind that the rest of us poor slobs with social security are going to face -- e.g. higher retirement ages and lower cost-of-living adjustments. That's where I'd start, anyway.
InsideTheHall
Sat, Aug 7, 2010 : 2:11 p.m.
Zealot - Keep your hands off the 401K plans. We do not need more government meddleing. Some of us who have 401K's have not lost 50%. Capitalism affords you the right to succeed while Socialism affords you only the right to be mediocre. Invest wisely and put money away on a consistent basis...even in small amounts.
Cyclezealot
Sat, Aug 7, 2010 : 1:05 p.m.
Macabre.. Since 401K's have also lost up to 50% of their assets for about40% of the population, you'll be seeing the return of Old Folks home like we saw in industrial England of 120 years ago. Only about 40% of the American population even have 401K's and are totally dependent upon Social Security. Statistics say there are 4 million Americans forced to work into their 80's even. Often they are forced to go back to work to pay spouses medical bills. You think you see beggars on the streets now with tin cups, wait until Macabre's society returns us to the era of poor houses. What need be instituted is some kind of National plan of Pension reform, instead of 401k's ripping off those unprepared to invest what meager wages they have.. Possibilities. Look into systems like Australia has developed in a plan they call superannuation.
Macabre Sunset
Sat, Aug 7, 2010 : 12:15 p.m.
For those of us not lucky enough to feed at the public trough, this is simply a dose of the reality we all face. These days, we have to be responsible for our own futures. It means we have to budget our own health care, as Cadillac plans with $5 co-pays aren't realistic. It means we have to save, because Social Security will disappear in about 15-20 years. Entitlements cost a lot of money. Somewhere between Kennedy's ill-advised financial decisions and Bush's equally ill-advised financial decisions, getting a public-sector job became like winning the lottery. That has to end, or we're simply going to bankrupt the country.
Vivienne Armentrout
Sat, Aug 7, 2010 : 10:46 a.m.
Go Blue, you are thinking of an article in the August 2010 Ann Arbor Observer by Judy McGovern. It is unfortunately not yet available online. The article, titled "Other People's Money", states that the state retirement fund put $20 million into the failed Broadway Village (Lower Town) development. It estimates that the fund has lost $12 million - I don't take it that $8 million has been paid back, but that the equity in the project has fallen by $12 million since the vacant property is no longer at its earlier value. Governor Granholm was unaccountably backing this project when there was much evidence that it had already failed. She attended a "groundbreaking" in 2008 and I assume that it was through her intervention or someone close to her that the state retirement fund was tapped at a time that the project was unable to attract any private investment. Fortunately our city council did withdraw the initial offer to issue bonds to support the project. Our city attorney spent many hours scrutinizing its finances and we owe him a lot for helping to kill what would have been a losing deal for the city as well.
InsideTheHall
Sat, Aug 7, 2010 : 10:37 a.m.
Will these be saved or created jobs?
mw
Sat, Aug 7, 2010 : 10:11 a.m.
Just a tip of the iceberg. See, for example: http://www.nytimes.com/2010/08/07/your-money/07money.html (And note that article in the NY Times)
Goes Blue
Sat, Aug 7, 2010 : 9:19 a.m.
The $12.9 million loss from the retirement fund was money used towards an Ann Arbor development project that fell through. A majority of the money was used to tear down existing buildings and begin cleaning of toxic waste created from a dry cleaners. This was in a recent Ann Arbor.com article though I can't remember the name of the development.
AlphaAlpha
Sat, Aug 7, 2010 : 9:02 a.m.
The proposed legislation is an excellent small step in the right direction. All public employee pension plans should become defined contribution plans, like nearly all private sector pension plans are, and not defined benefit plans, like nearly all public sector pension plans are. Times, and economics, have changed. Taxpayers can no longer afford, as the state brags: one of the best public pensions around. There will be more than enough willing and able applicants for public jobs even when wages are reduced 50% and defined benefit pension plans are scrapped.
MyOpinion
Sat, Aug 7, 2010 : 8:15 a.m.
How was it the plan lost $12.9 billion? Are we talking about investment loses? If so, if trained investment "specialists" couldn't make money then why would we/he assume an untrained individual could do better? [Craig Lounsbury] A defined contribution plan is just that - a defined amount of money is contributed each month by the employee and employer. No guarantee is made for how large the pot will be at retirement. However, the employee is not really controlling the pot. An investment company is managing the money and these sorts of plans lost money in the collapse of the stock market. The CREF part of TIAA/CREF is an example of this sort of plan. WIth a defined contribution plan is that you don't end up with unfunded pension liabilities or more retirees than workers. Whatever the retirees put into the system + interest is what they have to live on.
stunhsif
Sat, Aug 7, 2010 : 8:08 a.m.
Thank you Wayne Kuipers, a Democrat that is actually planning for the future with intelligence and looking at reality!
Dan Romanchik
Sat, Aug 7, 2010 : 6:47 a.m.
In the past, I have taught classes at WCC on a part-time basis, and I would be in favor of this move. I now have maybe a couple hundred invested in the state retirement system, and when I do retire, that little bit of money may not even be worth the trouble to figure out how to claim it. This move to treat part-time instructors as contractors would be even more beneficial to the instructors if they could then bump up the fees paid to the instructors a little bit.
Craig Lounsbury
Sat, Aug 7, 2010 : 5:57 a.m.
"The roughly $35 billion retirement system.... has lost $12.9 billion since early 2008." Whitworth said. This plan is based on the notion that people are incapable of managing their own resources. How was it the plan lost $12.9 billion? Are we talking about investment loses? If so, if trained investment "specialists" couldn't make money then why would we/he assume an untrained individual could do better? I'm not objecting to his plan per say, just not sure about some of his "logic" in his argument.
Tom Dodd
Sat, Aug 7, 2010 : 5:25 a.m.
Isn't this the same public employees' fund that Governor Engler took $39 million from to build prisons? And isn't this same pot from which the current State Legislature took $200 million to balance their budget? Looks like public employees are not only good investors, but they seem to have a bottomless piggy bank for others to dip into.