You may be getting calls and emails from legislators concerning House Bill 5355. Below is the content of a memo that several education groups will be circulating to legislators.
MASA opposes House Bill 5355 and its impact on school budgets. The legislation would change the MPSERS system payment method from a level percentage of payroll to a level dollar method while also reducing the payroll growth assumption built into the MPSERS system. In theory this is a good practice, however when coupled with several other changes to the retirement system dating back to Public Act 92 of 2017, costs will increase significantly on school districts and the state.
MASA urges the consideration of the following issues when debating this bill:
- When factoring in all contributions to the retirement system, Michigan already spends as a percentage of payroll more than any other state in the nation on retirement costs.
- PA 92 of 2017 changed the way districts pay retirement costs going forward from percent of payroll to growth in current operating expenditures (COE). This could increase districts cost above the established 20.96%. Their unfunded liability payments will potentially increase.
- ORS has implemented a Dedicated Gains Policy where any market returns above the assumed rate of return (now 7.75%) will be reinvested in the system to lower the Assumed Rate of Return (AROR). Reducing the AROR will cause UAAL and normal costs to increase for districts.
- This legislation would reduce the assumed payroll growth over time from 3.5% to 0%. It will cause UAAL and normal costs to increase for districts.
- PA 92 of 2017 and HB 5355 implement a floor policy that ensures the state will not spend any less on the retirement system than the prior year. This floor provision along with the other provisions listed above will make it so retirement costs will only increase going forward. As an example, the additional $200 million that was put towards the retirement system last year flows through to school districts and thus with the COE provision will be included in all future payments.
There is merit to the level dollar concept being put forward in House Bill 5355, however when coupled with all the changes listed above that are not yet implemented, school districts will see a significant increase in their costs impacting the dollars available for the classroom. This bill is reforming reforms this Legislature just put into place last year that have not yet taken effect.
MASA strongly encourages a no vote on House Bill 5355 and oppose the cost increases to local districts. Before making further and potentially unnecessary changes to the MPSERS system, it should be allowed to adjust for the changes already made.
If you have any questions, please contact MASA.
Associate Executive Director, Government Relations
Michigan Association of School Administrators