Unfortunately the House voted 57-48 in favor the (MPSERS)
overhaul, a compromise that includes a study to fully transition from a
defined benefit (DB) to a defined contribution (DC) system. Earlier in
the day the Senate passed the bill, SB 1040, by a vote of 21-16, sending
it to the House. The bill moved to the Governor's office for his
signature.
The changes made in this version include the following:
Employees hired before July 1, 2010 (non-hybrid employees), would
have the following choices: 1) make higher contributions in order to
continue receiving a 1.5% multiplier for future years of service; 2)
continue paying current contributions but have a 1.25% multiplier for
future years of service; or 3) freeze pension benefits earned to date
and move to a defined contribution (DC) plan for future years of
service.
Employees in the existing "hybrid" plan (those hired on or after July 1, 2010) would not be affected by these pension changes.
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New hires (first hired on or after September 4, 2012) could choose an
optional DC plan (with a 3% employer contribution if the employee
contributed 6%) instead of the hybrid plan.
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The employer contribution rate for unfunded accrued liabilities would
be capped at 20.96% of payroll, with an annual appropriation if/when the
rate for unfunded accrued liabilities exceeds 20.96%. Combined with an
average 3.5% of payroll for normal costs, the total employer
contribution rate will be capped at around 24.46% of payroll.
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For new hires (first hired on or after September 4, 2012) or for
members who choose this instead of existing benefits, retiree health
care premium coverage would be eliminated and replaced with matching
employer contributions up to 2% of compensation, deposited into a 401k
account; new hires would not have to remit the 3% employee contribution
for retiree health that is in the law for current employees.
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Beginning January 1, 2013, the premium coverage paid by the State
would decrease to a maximum of 80%, with retirees (both existing
retirees and future retirees) paying at least 20% of health care
premiums. However, current retirees who are Medicare-eligible as of
January 1, 2013, would pay 10% of health care premiums instead of 20%.
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Prefunding of retiree health care would be included; however, if
employees' 3.0% contributions for retiree health care were found to be
unconstitutional, funding for retiree health care would revert to a cash
basis.
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The early-out incentive costs associated with Governor Granholm’s
pension stimulus would be amortized over 10 years instead of 5 years.
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The retirement system would have to perform a study of university
health care, and provide information to the universities for their own
study of retiree health care.
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The Department Director, Senate Majority Leader, and Speaker of the
House would have to commission a study, costing not more than $150,000,
on the existing system and potentially converting to a defined
contribution plan for retirement. The study also would include a review
of rates of return on investments, mortality, and longevity. The study
would include specific recommendations for transitioning to a DC plan.
The study would further include a review of stranded costs, and current
operation expenses (COE), or other measures as a base for spreading
unfunded accrued liabilities (but COE would not be implemented under the
bill).
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The retirement system would be required to disclose, post, and e-mail
additional information related to financial statements and to maintain
an electronic mail address for retirement allowance recipients and
members.
The first series of changes under Senate Bill 1040 (H-3) relates to
choices employees would have to make. They are as follows: 1) increase
employee contributions and continue the multiplier (for pension
calculation) of 1.5% for future years of service, OR, 2) keep the same
level of employee contributions but have a reduced multiplier of 1.25%
on future years of service, OR, 3) make no future contributions, but
also receive no future years of service for a pension, and instead
freeze existing pension benefits and convert to a defined contribution,
or 401k plan.
Employees who wished to continue receiving the existing 1.5%
multiplier for future years of service (for use in calculating a
pension) would have to pay higher employee contributions than under
current law. Specifically, employees hired before January 1, 1990
("basic" plan members) who chose to remain in the basic plan would have
to pay 4% of compensation; these employees currently make no
contributions to MPSERS. All member investment plan (MIP) members hired
before July 1, 2010, whether they switched from basic or were first
hired into MIP, would have to pay a flat 7% of compensation; these
employees currently make graded contributions based on salary, presently
ranging from 3% to 6.4%. Employees hired on or after July 1, 2010, are
in the "hybrid" system and would not be affected by the proposed
changes; they would remain in the hybrid plan at their current
contribution levels.
If employees did not choose to make the higher contributions listed
above, they would have two choices: 1) pay the existing employee
contributions, but receive a 1.25% multiplier for future years of
service, OR, 2) freeze the earned benefit to date and convert to a DC
plan. The DC plan would require the employer to deposit 4% of
compensation into a 401k account, but no future pension benefits would
accrue to an employee choosing this option. Regardless of the option
chosen, previously accrued service would be calculated at the 1.5%
multiplier when pension benefits earned to date were determined.
Current employees would have between September 4, 2012, and October
26, 2012, to decide among the above options with decisions (e.g., higher
contributions, frozen earned benefits, etc.) implemented on the
transition date defined to be the first day of the pay period that
begins on or after December 1, 2012.
Two changes to retiree health care are proposed under Senate Bill
1040 (H-3). First, beginning January 1, 2013, State premium coverage
would be reduced to not more than 80%, with retirees paying at least 20%
of retiree health care premium coverage, an increase from the current
roughly 10% cost sharing. This change would affect not only future
retirees, but also people already retired. However, current retirees who
are Medicare-eligible would pay 10% of premium coverage instead of the
20% for non-Medicare-eligible retirees. This would only affect existing
(not future) retirees who are currently Medicare-eligible.
Second, the bill would eliminate retiree health care coverage for new
hires (first hired on or after September 4, 2012). Mirroring changes
made for State employees under Public Act 264 of 2011, the bill would
require an employer to make up to a 2% matching contribution into an
employee's 401k account in lieu of retiree health care coverage.
Employees would not be able to take loans out against the employer's
contributions under this proposal, which was also implemented under
Public Act 264.
There's little good news in the Senate and House finally
voting out SB 1040 today. On a 21-6 Senate vote and a 57-48 House vote,
they increased current employee contributions to their pensions,
increased retirees' share of their health insurance, and ended retiree
health insurance for new hires.
"This bill is not fair. It just shifts costs around and solves
nothing," said Rep. Jeff Irwin (D-Ann Arbor) who spoke in opposition to
the bill.
Under SB 1040, new hires will not be moved to a defined contribution
retirement benefit. They will stay in the current hybrid system which
combines a defined benefit and defined contribution mix. New to the
bill, is the call for a study of the financial impact moving new hires
to the defined contribution would cause. The study will be done by Nov.
15.
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