LANSING (AP) – Newly hired Michigan public school employees would pay more for their pensions and no longer receive state-provided health coverage in retirement under legislation approved Wednesday and headed to Republican Gov. Rick Snyder’s desk.
The Republican-controlled state Senate and House approved a measure that officials say would cut more than $15 billion from a $45 billion liability on the Michigan Public School Employees Retirement System. The reductions include a $130 million contribution by the state toward retirement costs.
That funding, along with the 3 percent contributions school employees are required to make, would significantly decrease the retirement system’s shortfall. Also under the bill, new public school hires would get a match of up to 2 percent plus a lump sum upon retirement to pay for health insurance. Retired employees covered by state-provided insurance would pay at least 20 percent of their premiums.
Still, the measure does not take another step favored by some in the Republican majority and a centerpiece of previously passed Senate legislation: scrapping pensions for new hires and pushing them into a 401 (k)-style retirement plan.
The measure calls for a third-party group to conduct a study due by Nov. 15 that would determine, among other things, the cost of ending pensions. Some lawmakers and Snyder administration officials have argued such a plan would cost billions to implement.
Republicans have said the point of the legislation is to save the retirement system, adding that legacy costs could put the whole thing in jeopardy. Democratic lawmakers have echoed concerns raised by retired and current teachers, arguing the changes erode promises of pensions and health care coverage in retirement. Many teachers already saw their personal pension contributions increased in 2007, and now will have to pay state income taxes on their pensions under legislation passed last year.
The retirement system has 444,185 members, including 192,435 retirees.
Senate Majority Leader Randy Richardville said the legislation isn’t perfect, but it was important to carefully examine the financial impact of switching to a defined contribution plan and pass the health care piece of it now. That, he said, sends a signal to Wall Street that Michigan is taking care of its economic problems.
“This is a big step for financial accountability,” he said.
It also ends some uncertainty that had been facing local school districts as they tried to set their budgets for the upcoming school year.
“At long last, Michigan’s school leaders can move forward on educational initiatives without the negative budget impact of steeply rising retirement costs,” William Mayes, executive director of the Michigan Association of School Administrators, said in a statement.
House Democratic Leader Richard Hammel said in a release that Wednesday’s actions “hurt middle-class families by short-changing teachers and making it harder for them to provide for their families.”