The House joined the Senate Thursday in passing changes to future Michigan public school employees’ retirement options, giving them a choice between a more lucrative 401(k) or a less enticing pension system.
The significant reform was the major ask by Senate Majority Leader Arlan Meekhof (R-West Olive) and House Speaker Tom Leonard (R-DeWitt) as part of the Fiscal Year (FY) 2018 budget negotiations. It doesn’t explicitly end teacher pensions, but does create a new pension system that could close if it ends up being 85 percent funded over a two-year window.
Due to the constitutional requirement that a bill wait five days after it passes one chamber before the other takes it up, neither SB 0401 nor HB 4647 could be sent to the Governor for his signature until this week. The governor is expected to sign the bill when it does reach his desk.
HB 4647 moved out of the House, 55-52 with Reps. Joe Bellino (R-Monroe), Gary Howell (R-Lapeer), Martin Howrylak (R-Troy), Mike McCready (R-Birmingham), Dave Pagel (R-Berrien Springs), Brett Roberts (R-Charlotte) and Jeff Yaroch (R-Richmond) joining the entire Democratic caucus in voting no.
SB 0401 moved out of the Senate, 21-17, with Sens. Tom Casperson (R-Escanaba), Rick Jones (R-Grand Ledge), Mike Nofs (R-Battle Creek), Margaret O’Brien (R-Portage), Tory Rocca (R-Sterling Heights) and Dale Zorn (R-Ida), joining the chamber’s 11 Democrats in voting no.
Republican leadership’s decision to move both bills before the weekend was more a strategic decision than a functional necessity. Thursday’s votes lock in their “yes” votes now, making final passage this week less worrisome.
The plan is heralded as lessening the state’s long-term financial risk in its public school retirement system. It’s designed to steer more future traditional public K-12 employees — which includes community college employees and some university employees — to the 401(k)/defined contribution benefit.
The goal is to create a new retirement structure that lowers the $29 billion unfunded liability within the Michigan Public Schools Employee Retirement System or MPSERS.
Most Republicans claim the bill is needed to “stop digging the hole” of open-ended balance sheet debt that will hang over future generations into perpetuity. The changes do not impact any current employees outside of those currently receiving a 401(k), who could take advantage of the higher contribution levels.
Republicans argue that the state is paying record levels on K-12 education while contributing $1 billion each year to help control school retirement costs. MPSERS, at this point, is only 60 percent funded and “we are putting people at risk” by not addressing the situation.
“This is the best compromise that protects retirees, teachers and the profession,” said Sen. Phil Pavlov (R-St. Clair), chair of the Senate Education Committee, and the bill’s sponsor. “We have an opportunity to offer great benefits, a secure system and the ability to manage it going forward . . . I’ve given it my best.”
“Simply put, we are improving our benefits to our new teachers, and we are protecting our existing teachers. We must address this problem and this is a good start,” Rep. Chris Afendoulis (R-Grand Rapids Twp.).
“As a teacher, I urge all of you to give teachers a choice to take control of their retirement,” said Rep. Pamela Hornberger (R-Chesterfield Twp.).
In the Senate, nine of the chamber’s 11 Democrats took a turn at the microphone to lambast a plan they said is diminishing the teaching profession by thrusting more of their retirement costs onto them.
Sen. Curtis Hertel, Jr., (D-East Lansing) argued Thursday’s bill is more about kowtowing to West Michigan business community and supporters of charter schools as part of an organized attempt to dismantle public schools.
“I urge a no vote until we can hear the future implications of this plan on our state budget and our taxpayers,” said Sen. Hoon-Yung Hopgood (D-Taylor). “Our taxpayers deserve to know how much it will impact their balance sheets and how bad this deal is for them. Our students deserve better.”
In the House, Senate Minority Leader Sam Singh (D-East Lansing) and his colleagues focused on the School Aid Fund drain this bill would create. Instead, changes Singh called “phony” were ramrodded through the chamber to the detriment of the teaching profession.
“The way it is structured it takes money out of the classroom for our kids. What we are saying is that we are going to take money directly out of the classroom to pay for this bill,” said Rep. Donna Lasinski (D-Scio Twp.).
“If we were serious about doing what we say we are doing with this package, we would have invited teachers to the table to discuss. We didn’t do that. Would we have done that with any other profession?” asked Rep. Darrin Camilleri (D-Brownstown Twp.), a teacher by profession.
“I have heard it said here that this would solve the problem,” Singh said. “If you have been told that, you have been misinformed. The $29 billion that is in the legacy program is not touched. What we are doing is … creating a new program. What we are doing here today is changing from a program that is fully funded to create a new program.”
No changes were made to either bill Thursday, per the leadership agreement. In the House and Senate, Hertel and Rep. Stephanie Chang (D-Detroit) attempted to remove the $5 million appropriation to the Office of Retirement Services (ORS) to implement the changes to the retirement system.
Hertel argued that the funding is designed to make the bill unable to be challenged through a public referendum. Pavlov responded that in 2010, there was nearly a $5 million appropriation in the legislation signed by Gov. Jennifer Granholm to make the changes to the hybrid system at that time.
In the Senate, the amendment failed on a mostly party line 14-24 vote with Sen. Judy Emmons (R-Sheridan), O’Brien and Rocca voting yes with the Democrats. The amendment was gaveled down in the House without a roll call vote.
Rep. Klint Kesto (R-Commerce Twp.) and Rep. Brett Roberts (R-Charlotte) had a combined four amendments gaveled down without a roll call vote. One amendment lowered the required liability contribution rate from 20.96 to 18.96 percent. Another lowered the funding level trigger that could kill the new pension system from 85 percent funded to 80 percent funded. A third dealt with the age of those in the pension system.
Rep. Adam Zemke (D-Ann Arbor) brought back the substitute that was struck down in committee on Wednesday. It reduced assumed rates of return on investments in the hybrid from 7 percent to 6.5 percent. Zemke’s version would have increased the employer match in the defined contribution portion of the plan from 50 percent up to 3 percent of an employee’s salary to an employer contribution equal to 4 percent plus 100 percent matching up to an additional 3 percent.
The substitute would have cost more in the first year, $256 million compared to $23 million in the Republican plan. But Zemke contended it would have cost significantly less in the long run and paid down the pension debt faster.
Hopgood, Hertel and Sen. David Knezek (D-Dearborn Heights) put up six other amendments that attempted to do the following:
– Remove the requirement that employees and employers share any additional cost to the new pension plan at a 50/50 ratio in case it’s determined that the defined benefit program needs additional contributions to be considered properly funded.
Pavlov argued that the bill already has substantial safeguards to protect employees from this provision needing to take effect.
It failed, 16-22, with Sens. Goeff Hansen (R-Hart), Ken Horn (R-Frankenmuth), O’Brien, Rocca and Zorn joining Democrats in voting yes.
– Remove the “kill switch” or the “trigger” that would allow the Legislature to close the new hybrid pension plan if actuaries found that it’s funded at 85 percent or less. Republicans argued the whole premise of the bill is to stop “digging the hole” of unfunded liability and if the pension isn’t working, it should be stopped.
It failed, 13-25, with Nofs and Rocca joining Democrats in voting yes.
– Remove a requirement to the automatic raise to the retirement age within the law if mortality tables increase life expectancy. Democrats argued such a stingy move is designed to squeeze more money out of retirees, while Pavlov argued this is a financially prudent move to protect the solvency of the fund.
It failed on a mostly party line 12-26 vote with Rocca joining Democrats in voting yes.
– Require an actuarial analysis be performed before the new plan goes into effect. Moments after Hopgood spoke to his amendment, Pavlov announced he had an actuarial analysis from GRS Consulting in his hand that he would distribute to members.
It failed on a mostly party-line 17-20 vote with Horn, Nofs, O’Brien, Rocca, Sen. Tonya Schuitmaker (R-Lawton) and Zorn joining Democrats in voting yes.
– Adding all charter school employees to MPSERS as a way to bolster the retirement system by adding new members, thereby improving the presumed rate of return, Hertel said. Pavlov said a significant number of charter schools do participate in MPSERS.
He also said this retirement plan doesn’t meet many schools’ “business model,” to which Hertel said, “I don’t work for some corporation’s business model. I work for the people of Michigan.”
It failed on a mostly party-line 14-24 vote with Emmons, Rocca and Sen. Wayne Schmidt (R-Traverse City) joining Democrats in voting yes.
– Protecting the School Aid Fund from suffering too much of the blow from the costs associated with the plan. Pavlov noted that teacher retirement costs, however, does relate to the costs of running schools and that using money out of the School Aid Fund is not out of bounds.
It failed on a mostly party-line 14-24 vote with Horn, Rocca and Zorn joining Democrats in voting no.