CHICAGO — Michigan lawmakers approved a handful of reforms to the state’s massive public school employees’ retirement system Wednesday during a one-day session before adjourning for the summer.
The Senate early afternoon passed by 26 to 21 a compromise bill that makes a number of reforms to the Michigan Public School Employees’ Retirement System. The House passed Senate Bill 1040 bill late Wednesday. Both chambers are controlled by the GOP and Republican Gov. Rick Snyder is expected to sign it.
“Resolving this financial burden and bringing stability and protection for continued benefits to school employees now and in the future is among the most critical pieces of legislation I will sign this year,” Snyder said in a statement. “I appreciate the Legislature’s hard work in putting retirement costs back on a sustainable path for both school employees and taxpayers.”
But lawmakers opted to delay until after the November election the most significant decision — whether to convert the entire system into a defined contribution 401(k)-style plan or retain a hybrid system. The bill calls for a study on the pros and cons of shifting into a defined-contribution plan, a move favored by some top Republican senators.
S.B. 1040 was a compromise that included most of the provisions of a bill the House passed in May as part of the state’s fiscal 2013 budget. The Senate originally rejected the House bill, largely because Republican leaders wanted to shift the entire public school system into a defined contribution system.
Snyder and top House Republicans urged GOP senators to support the compromise bill, saying it would cost up to $1.4 billion to convert to a 401(k)-style plan.
The legislation will end retiree health benefits for new public school employees, increase employee pension contributions and require employees to pay 20% of their health care costs. It is expected to save local school districts $970 million over the next two years by capping their contribution rate at 21% of payroll, down from a projected 27.3% rate in 2013.
The state’s school aid fund will have to appropriate any money needed for liabilities above that.
MPSERS is the state’s largest retirement system, with an estimated 400,000 members and a pension and other post-employment benefit liability totaling $45 billion. That includes a $27.6 billion OPEB liability, according to the most recent comprehensive annual financial report.
Like the original House bill, the legislation calls for the state’s first prefunding of its OPEB liability in decades in part by requiring a 3% employee contribution.
The OPEB reforms, combined with the $130 million prefunding contribution, would bring down the liability by $15 billion, in part because it would trigger a change in the accounting method used to determine future liabilities, according to a House Fiscal Agency analysis.
Unlike the House bill, the Senate bill would prefund the OPEB liability only if a lawsuit currently pending in the Supreme Court that challenges the 3% requirement is decided in the state’s favor.
Lawmakers will return Sept. 11 for seven days and have set a one-day session for October.
