Michigan retirement plans for teachers

The Michigan Public School Employees Retirement System (MPSERS) is a retirement program for the teachers of Michigan. This program was initiated in 1945. After several modifications, this program started allowing Michigan’s teachers to choose from a variety of different state-funded retirement plans from February 2018. Sometimes, people also refer to this program as Michigan retirement teachers and this broad term encapsulates all the programs funded by the state.

By default, every teacher is a participant of the DC (Defined Contribution) plan unless he/she chooses to join the Pension Plus 2 plan. Those workers who were employed before 2018, are a part of the exclusive Pension Plus Plan, which comprises slightly different regulations. The Pension Plus 2 plan is hybrid, it combines different elements of the DC plan and the DB pension plan both.

The structure of a Pension Plus 2’s DB potion is similar to the other state. However, the contributions made by a teacher or made by the school district or state on his/her behalf do not decide the pension’s value at retirement, unlike other plans of retirement. Those contributions are used for market investment, because the retirement benefits of an individual worker are not derivative of the revenues generated on these investments.

Pension Plus 2 Plan

6.2% of the salary is contributed annually to the Pension Plus 2 plan’s DB component by those teachers who participate in this plan. The same amount is matched by the employer. On the other hand, the DC component of this plan requires an annual 4% contribution. Half of these contributions are made by teachers for the personal healthcare reserves, whereas half of contributions are for the retirement savings. The employer matches 2% and 1% respectively of those contributions. Hence, a total of 7% out of the entire salary is annually contributed to the component of retirement savings as per this Michigan retirement teachers program.

How to calculate the DB component of Michigan’s Pension Plus Plan?

A formula is used for deriving pension wealth. The formula used for calculation is given below:

Avg. highest 60 consecutive months of salary  X   1.5% Multiplied   X  Service Years

The state analyzes the final salary of an educator by keeping in mind their highest salary of 60 successive months. For instance, an educator with 25 years of work experience and a final salary worth $70,000 can acquire a pension benefit every year equivalent to 37.5% of their annual salary. However, do not forget that in the Pension Plus 2 plan, DB is just a component of the retirement benefit of a teacher. 

Eligibility criteria for Michigan’s Pension Plus Plans

Just like other states, Michigan retirement teachers’ Pension Plus 2 plan require you to serve for a specific number of years to qualify for. For the plan’s DB component, the state vesting period is 10 years. Although, after 10 working years a person gets qualified for the portion of pension, but it may not be that much in amount, because teachers can only obtain their pension money after hitting the retirement age set by the state.

Specific windows are set by the state regarding when educators can retire and gain retirement funds based on years of service and age. A teacher who at least has a decade of working experience and is 60 years old, can retire and obtain complete DB benefits if he/she is a part of the Pension Plus 2 or Pension Plus plan.

For the plan’s DC portion, educators are automatically entrusted for their contributions. Teachers are 50% endowed to the contributions of their employers after 2 service years. This percentage keeps on rising. With 3 years of service, teachers are 75% vested whereas they are fully vested after 4 years.

Michigan’s DC Plan

The DC retirement plan of Michigan automatically enrolls all newly hired teachers. This plan doesn’t contain any component of DB. Instead, it is a mixture of a 401(k) plan and a 457 retirement plan. A teacher is allowed to contribute towards the plan’s 457 component as per his/her liking. The contributions of the teacher are matched by 50% from employers. A teacher participating in this plan is immediately endowed with his/her contributions. After just 2 years, they are vested by 50% in the contributions of their employees, 75% after 3 service years, and fully after just 4 years. The Defined Contribution plan becomes completely portable after vesting.

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