A plan to change the pension system for teachers and other public school employees was rushed through committees in the House and Senate Wednesday and could receive votes in the full chambers as soon as Thursday.
The identical House and Senate bills weren’t publicly available until nearly 11 p.m. Tuesday and the committee hearings on the bills began at 8 a.m. Wednesday. So teacher groups and Democrats objected to the fast track the bills were taking.
“I would hope that we would hold off. This is a significant enough and a complicated enough issue that another week working on this would make a lot of sense,” said Sen. Hoon Yung-Hopgood, D-Taylor. “Quite frankly, we’ve had one individual representing employee groups testify that he hasn’t had enough time to digest this and I think that’s a problem.”
But both the House and Senate Education committees voted along party lines with Republicans supporting the change and Democrats opposed, to move the bills to the full House and Senate.
Rep. Tom Albert, R-Lowell, who sponsored the House version of the bill, said the legislation “flips the script,” by getting the government out of retirement planning and, he says, giving employees more choice.
Under the bills:
All new teachers and school employees hired after Feb. 1, 2018, would automatically be placed into a defined contribution retirement plan. The plan would have the school district pay 4% of the employee’s salary into a 401(k) plan. The employee could also contribute and the state would match up to 3% of the employee’s contribution. The current 401(k) plan that about 20% of new school employees are enrolled in has a 3% employer match. Those employees in the current 401(k) would begin getting the better benefits on Oct. 1.
The state would close the current hybrid system that is a combination of pension and 401 (k) and replace it with a new system that would be more costly for the employee and would be closed by the state if it wasn’t at least 85% funded for two years in a row.
A $5-million appropriation was added to the legislation to pay for transition costs to the new retirement plans. But that money also makes the bill immune from a referendum to repeal the measure by voters.
The legislation is trying to deal with a $29-billion unfunded liability in the Michigan Public Schools Employees Retirement System, or MPSERS. The Republican leadership in the House and Senate have set aside about $475 million in the 2017-18 budget, and a portion of that money would be used to pay down the debt.
The Republicans are also trying to get public school employees into the same type of system that the rest of state employees have been on since 1998 and that 83% of private sector businesses use rather than a pension system. The idea behind the proposed plan is to make the 401(k) option so much more attractive than the hybrid pension system that new hires would automatically choose the 401(k) rather than the hybrid system.
State Treasurer Nick Khouri said he supports the plan, which is a compromise between the original plan offered by the GOP leadership and Gov. Rick Snyder, because “It protects current teachers and retirees, provides a balanced option for new teachers and limits future taxpayer risk.”
The tentative deal on the teacher pension change is coupled with a compromise on the 2017-18 budget, giving Snyder some of his priorities on investments in infrastructure and the state rainy day fund, in exchange for his support on the MPSERS change.
But Democrats and Nick Ciaramitaro, president of the Coalition for a Secure Retirement and legislative director of AFSCME Council 25, which represents 8,000 public school employees, said the 85% funding trigger to close the hybrid system is designed to make that option fail.
“The biggest thing that concerns me is the automatic trigger to close the system without any action by the Legislature,” he said.
And Todd Tennis of Capitol Services, a lobbying firm that represents the American Federation of Teachers in Michigan, said he was particularly troubled by the provision in the bill that makes employees pick up a portion of the unfunded liabilities in the new hybrid pension system.
The current version “introduces some concepts that are fairly unprecedented,” he said, including “penalizing future hybrid members for future liabilities in the system over which they have no control.”
But Sen Phil Pavlov, R-St. Clair, said when developing the closure trigger in the proposed legislation, it wasn’t intended to actually close the system.
“It’s just an early warning system,” he said. “Then the state will have the opportunity to adjust their investment portfolio.”
The bills — SB 401 and HB 4647 — now move to the full House and Senate.
Contact Kathleen Gray: 313-223-4430, email@example.com or on Twitter @michpoligal