Michigan’s recent legislative action reforming its largest retirement system is a credit positive for local school districts, Moody’s Investors Service said last week.

The Legislature earlier this month passed SB 1040, which makes various changes to the Michigan Public School Employees Retirement System. Among other things, it caps local districts’ contribution rates, increases employee contributions, freezes benefits at current levels, and makes employees hired after Sept. 4 ineligible for retiree health benefits.

The bill also would require prefunding the other-post employment benefits liability, though the outcome of that provision will be decided in the courts.

Moody’s noted that the House Fiscal Agency estimates that the cap on district contributions will save nearly $850 million over the next two years.

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