Teacher retirement bills move to full House and Senate votes

Jun 16, 2017

The latest version of changes to the state’s teacher retirement plan passed full chamber votes Thursday.

This came after major changes were announced late Tuesday and received committee hearings early Wednesday morning. The House and Senate adopted identical amendments to bills their respective chambers had already introduced.

Democrats have largely been left out of behind the scenes negotiations between the governor and leaders of the House and Senate. Democratic Representative Winne Brinks voiced her frustration with the speed the bills were moving during a committee hearing Wednesday.

“There’s a lot of information here, it’s a very complex bill,” she said. “There’s lives, many many lives that will be impacted by this and I think it deserves thorough vetting. Looking at the way this process is going now, I don’t think this is going to be a very thorough vetting.”

House Education committee chair, Tim Kelly says the bills were introduced weeks ago and has been an ongoing topic of discussion. He says the bills are not being rushed.

The legislation would offer new teachers a choice. They could have a 401K with a more generous match than the current 401k offering. Or they could have a 401k and pension hybrid. That plan requires teachers to assume more risk to the state's unfunded liabilities and contribute more than the current hybrid plan.

Kelly says these are attractive options for new teachers.

“Transitioning to a 401k style is best for everybody,” he said. “Not only does it eliminate wrongful assumptions on the state level, but it also provides an ample and I think more generous retirement package to the teacher.”

The bills come in large part from concerns about the state’s unfunded liabilities accrued from pensions.

Governor Rick Snyder was initially against the idea of changing the state’s retirement system. He said the current hybrid system is fully funded and in good shape. He didn’t support the original version of the bills that would completely close the hybrid system. It resulted in a stalemate between the governor and Republican leadership, with the governor left out of ongoing budget decisions.

Now the governor is on board with the newest version and state budgets are in the process of being adjusted to bring in the governor’s input.

State Treasurer Nick Khouri said when it comes to having a hybrid system, “It’s a balancing act. What we were trying to do here is make sure we created this new hybrid plan that’s absolutely secure.”

The House and Senate passed their respective bills by a slim margin. Both chambers saw Republicans crossing party lines, and the House narrowly passed the bill in a 55 to 52 vote.

Democrats offered amendments to do things like get rid of the cost sharing for the hybrid plan and remove the automatic increase in retirement age for the pension if mortality tables increase life expectancy. Each amendment was shot down.

Senator Curtis Hertel offered an amendment to get rid of the five million dollar appropriation – it would make the bill immune from a vote by the public.

“The only reason to add an appropriation to this bill, is to go around the voters and make it referendum-proof,” he said. “Colleagues, no matter how much you destroy Michigan’s education system, the people will never be dumb enough to not see what you’re trying to do right now.”

Khouri says the 5 million dollars was needed for administrative costs, but the intent was not to make it referendum-proof.

The legislation is still very different from how it looked when first introduced several months ago. The original form would have gotten rid of the pension-hybrid system altogether. Bill sponsor, Republican Representative Thomas Albert says he’s happy with the compromise.

“You know I have young kids and it’s nice to be able to give them the change and the future to have school dollars go to education,” he said.
 

Overall, if passed the bills would, in part, do the following:

-          Close the current Michigan Public School Employees’ Retirement System hybrid pension plan to new hires starting February 1, 2018.

-          Give new teachers a choice between a new 401K plan or revised hybrid pension-401K plan. However, teachers would be automatically enrolled in the 401K-style plan and then have 75 days to choose the revised plan if they want.

-          The 401K plan would get an employer match of up to seven percent of their annual salary. The school puts in four percent and if the employee adds another three percent of their salary, the state will also put in three percent.

-          The new hybrid plan would include a 50-50 cost share between the employee and the employer, including the costs of future (and yet unknown) unfunded liabilities, and other revisions to the retirement eligibility age, plan assumptions, and unfunded liability payment methods.  

-          There would be a trigger in place that would close the new hybrid plan if the actuarial funded ratio goes below 85 percent for two years in a row.

Lawmakers plan to have a final concurrence vote next week before sending the legislation to the governor’s desk. A spokesperson for Speaker of the House Tom Leonard says they are undecided if they will have additional hearings on the bill, since they previously had hearings on current form of the legislation.

For more information,  see SB 401 and HB 4647.