Michigan panel votes to close pensions to new teachers
LANSING, Mich. (AP) — A Michigan Senate committee narrowly voted Wednesday to close the pension system to new teachers and other school employees and to instead offer them only a 401(k)-style retirement plan, despite objections from Gov. Rick Snyder.
The switch in plans, which would be similar to one made for newly hired state employees nearly 20 years ago, is favored by many Republican lawmakers as a way to address the $26.7 billion in unfunded pension liabilities facing the Public School Retirees Retirement System. That does not include another $9.3 billion in unfunded retiree health care liabilities.
Democrats fiercely oppose the legislation and are hoping it does not gain traction in the GOP-led House or with the Republican governor, who said last week that the current hybrid system is "working." His administration spoke out against the bills Wednesday.
The bills won approval from the Senate Appropriations Committee on 9-8 votes, with three Republicans joining all five Democrats in opposition. The full Senate could vote later Wednesday.
The move would affect all school employees hired on or after July 1, 2017. Michigan would join Alaska as the only state to have closed the pension system to both newly hired school and state workers.
The nonpartisan Senate Fiscal Agency estimated the switch could cost $1.6 billion to $3.8 billion in the first five years, depending on whether accounting rules are followed and other factors such as the estimated rate of return on investments.
School employees hired since mid-2010 qualify for a combination of a lifetime pension (defined benefit) after retirement and a 401(k) or 457 (defined contribution). Snyder and lawmakers in 2012 forced existing school employees to pay more toward retirement or receive a smaller pension, eliminated cost-of-living adjustments for new hires, and ended their retiree health insurance and replaced it with extra contributions to their 401(k). But senators' attempt to eliminate pensions for new hires failed, largely because of concerns with the large upfront payments needed to fund a system with no new employees joining.
The Senate action occurred during a post-election "lame-duck" session in which the House is expected to pursue unspecified changes to municipal workers' retirement benefits.
"If we continue at this pace, at some point the system won't be able to support itself and people who are counting on retirement probably won't have one," said Senate Majority Leader Arlan Meekhof, R-West Olive. "So we need to make some reforms. ... We think that'll help ease some of the pressure."
He said most Michigan workers have 401(k) accounts, which he argued are more portable from job to job.
"We think we have the right mathematics to make it work out," he said when asked about the budget impact.
Senate Minority Leader Jim Ananich, D-Flint, said Republicans are too blame for there being fewer active members in the teacher retirement system, in part by allowing the expansion of publicly funded charter schools where many teachers are not enrolled in MPSERS.
"It's just the wrong message to be sending to people. People who work for a living deserve to have some security at the end of their life," he said.
He pointed to potential moves in Washington to privatize Medicare and Social Security.
"The retirement plan coming out of the Republican Party is work until you're dead," Ananich said.
There are various causes for the deficits that the teacher pension fund is facing, including that the state government hasn't contributed all of the money it promised the workers. Retirement costs also have risen because there are more retirees and fewer active teachers to contribute to the system amid declining school enrollment and lagging investment returns.
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