The package of bills was pushed through the Democratic-controlled House Labor Committee with no testimony after state Rep. Jim Haadsma, a Democrat, said he wanted to "get the bills to the House floor." He declined to take questions from a reporter after the evening committee meeting.
GOP state Rep. Tom Kunse left the meeting early after voicing criticism of the process. Kunse said he isn't opposed to expanding pension options for law enforcement or having conversations about other employee pension options. But he argued there aren't enough actuarial studies to show the legislation is a sound financial move that won't result in the state becoming saddled again with high retirement costs and unfunded liabilities.
"I can't believe they're willing to kick the financial can down the road again," Kunse said. "Of course, everybody likes the idea of a pension. But we still have to pay for it. I'm fine to have the conversation, but you can't say 'let's add the pension' and then worry about how you're going to pay for it later."
Democratic state Rep. Matt Koleszar argued his bills expanding teacher pension options were more limited and more financially responsible than people have been led to believe. He said a better retirement plan is needed to keep teachers in the profession.
"We have suffered from a massive teacher shortage and one of the biggest reasons is we don't have a good retirement system for teachers," Koleszar said. "The big sales point back in 2018 was, 'Hey, if you give them a 401(k), it's affordable.' Sure was. As conditions in the classroom got worse, they took their 401(k) and left."
Competing Plans
Currently, new hires participating in the Michigan Public School Employees Retirement System — largely teachers and school support staff — can choose between a defined contribution plan similar to a 401(k) or a hybrid plan that requires a contribution but functions as a pension with a defined benefit upon retirement.
The hybrid plan, called the Pension Plus 2 program, was established under Republican Rick Snyder, the former governor, as an option separate from the traditional pension system, which carried a significant amount of unfunded liabilities. The traditional pension option has been closed to new employees since July 1, 2010.
The Pension Plus 2 program, from about 2018 through 2023, had a short 75-day window to opt into the hybrid program or be added to the defined contribution program by default. The short window resulted in waves of new teachers defaulting in perpetuity to the 401(k) plan, Koleszar said.
His legislation would seek to reopen the hybrid option to those teachers — giving them "another bite at the apple" — and make other tweaks to the law, including setting the age of retirement at 60 permanently and adjusting retiree healthcare matches.
Under the proposed legislation, teachers currently in the 401(k)-style defined contribution plan would have the option in the first four months of 2025 to cancel their defined contribution plan and join Pension Plus 2 Plan instead. The change would be irrevocable and would come with the option to purchase a five-year service credit, which allows teachers and school personnel to retire earlier with full benefits. Individuals hired after Sept. 30, 2025 would have the same option.
The second bill would automatically enroll members of the State Employees' Retirement System into a pension plan and allow current employees to opt into the pension plan, if desired. The switch, made within the first four months of 2025, would be irrevocable and come with the option to purchase a five-year service credit.
The State Employees' Retirement System's pension plan was closed to new hires on March 31, 1997.
Both programs also make changes to match amounts for employees' retirement healthcare accounts for certain employees.
Aid in Retention
Like Koleszar, state Rep. Regina Weiss, a Democrat, argued the changes to the state employee retirement system were necessary to retain employees in state government.
"You can take that anywhere," Weiss said of state employees' 401(k) system. "It removes incentives to keep people career-wise in their position."
The bills would increase costs for employers — from school districts to community colleges to the state — because it is expected more employees will participate in a pension or pension/defined contribution program, which would likely require a higher contribution from the employer, according to a House Fiscal Agency analysis of the bills. The exact cost would depend on how many employees opt into the program.
"Additionally, to the extent that pension or hybrid plan participation is increased, the bill would result in the employer taking on additional financial risk, which would lead to increased costs in the long term if the pension or hybrid plan were to develop an unfunded actuarial accrued liability (UAAL) at any point in the future," the fiscal agency analysis said.
The Reason Foundation, a libertarian think tank, estimated the bills would inflate the state employee retirement services plan's unfunded liabilities from $5.4 billion to "well over $8 billion over the next 15 years."
The state employee bill, Reason Foundation argued in submitted testimony, "would undo a nearly 30-year-old pension reform that has been working effectively to manage financial risks and personnel costs for state agency employers and which has helped taxpayers avoid billions of dollars in additional unfunded liabilities."
The House Labor Committee also advanced Senate and House versions of bills that would allow corrections officers and employees, conservation officers and other law enforcement officers to participate in the Michigan State Police retirement plan. Those officers would be treated as if they joined the program after 2012, placing them in a hybrid retirement plan that includes defined contributions and defined benefits.
The legislation would allow certain employees affected by the bill to purchase any or all credit they had accrued in the State Employees Retirement System and transfer the credit to the state police retirement system.
Like the proposed changes to other public employee pensions, those affecting law enforcement are likely to increase payroll pension costs, according to the House Fiscal Agency. But it’s not clear by how much.
“The magnitude of the initial cost increase would depend on the number of employees that converted to the Pension Plus plan, the replacement rate of employees under the old system with new employees in the Pension Plus system, and calculated contribution rates,” the analysis said.
©2024 The Detroit News, Distributed by Tribune Content Agency, LLC.
