MEMSPA Legislative Update

Public Employee Pensions, Other Post-Employee Retirement Benefits, and New Hire MPSERS Updates

Last week’s announcement by Amway President Doug DeVos that the West Michigan Policy Forum has made restructuring public employee pensions and other post-employment retirement benefits (OPEB) their number one legislative priority has caused significant concern in school districts and local governments throughout Michigan. Special interest groups such as the Mackinac Center for Public Policy have also ramped up media and grassroots activity urging legislative action on the issue during the upcoming lame duck session of the Legislature.

MEMSPA’s lobbying team is closely monitoring discussions surrounding these issues in Lansing. It is important to remember that policymakers have not yet put forth any new concrete proposals for pension and/or OPEB reform, though it is readily apparent that such efforts are forthcoming in the near future.

Two bills have been introduced in the current legislative session to close MPSERS to new hires and place all new school employees in 401(k)-type Defined Contribution (DC) plans: House Bill 5218, sponsored by Rep. Tim Kelly (R-Saginaw), and Senate Bill 102, sponsored by Sen. Phil Pavlov (R-St. Clair). Neither has seen any action to date. However, given that some legislators and special interest groups continue to advocate for closing MPSERS and forcing all new hires into more-costly DC plans, following are some important points to keep in mind:

 Closing the MPSERS Hybrid Plan to new hires would cost the K-12 budget more than $2 billion over the next four years, and over $600 million next year alone. To date, proponents of closing the MPSERS Hybrid Plan have refused to acknowledge how to pay for these transition costs.

 One false narrative commonly cited by proponents of closing MPSERS is a need to do so in order to reduce existing Unfunded Accrued Liability (UAL). It is important to remember that simply closing the system to new hires does not reduce existing UAL debt by one penny. Rather, such action could actually increase strain on the K-12 budget, due to the need to accelerate funding for transition costs to ensure promised benefits can be paid now and well into the future.

 Governor Snyder and the Michigan Legislature enacted significant reforms in 2012 that eliminated nearly $16 billion in long-term MPSERS debt and placed the system on solid financial footing going forward. The Legislature should allow these reforms continue to work, and consider reasonable discussion of pension or OPEB reforms next year, rather than in the upcoming lame duck session.

MEMSPA encourages members to reach out to legislators and candidates as Election Day approaches and ask their thoughts on this very important issue that affects not only the ability of schools to attract and retain quality school personnel, but that could also significantly reduce dollars available to be utilized in the classroom.