New teachers would default to 401(k) under compromise plan

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LANSING, Mich. (AP) — Newly hired teachers in Michigan would only have a 401(k) retirement plan unless they choose a less generous pension benefit under the tentative framework of a deal reached between Gov. Rick Snyder and top Republican lawmakers Thursday.

The agreement, the details of which were still being ironed out, means Snyder and the legislative leaders will work to finalize the next state budget after differences over the retirement plan delayed the spending plan.

The framework calls for new hires to default into a 401(k) plan similar to one that state workers have had since 1997. They could still choose a blended pension-401(k) benefit, but it would be structured differently so it costs new teachers more of their pay than current employees.

The new hybrid system — which would replace one created in 2010 — could be automatically closed it if is underfunded.

"We have a tentative framework," Snyder told reporters after meeting with Senate Majority Leader Arlan Meekhof and House Speaker Tom Leonard at the Capitol. "We still need to continue to work out some of the things that provide I think better retirement for school employees. The other piece is we're going to work together on hopefully getting a budget done and in place by the end of the month."

Snyder, a Republican, had resisted calls to close the current blended system, citing large transition costs and saying the system is adequately funded unlike an older plan with $29 billion in liabilities. But GOP leaders in the Legislature made it a priority and have been advancing a budget that leaves in reserve $475 million for first-year costs to make the switch.

"This really does give (teachers) a better opportunity to plan their retirement. ... It protects taxpayers and we're going to pay down our debt," said Senate Majority Leader Arlan Meekhof, R-West Olive.

Democrats and organized labor have criticized the push to exclude new teachers from a pension, pointing to huge upfront costs, saying it would exacerbate a teacher shortage. They urged Republicans to instead boost classroom spending and fix the roads. The Michigan Education Association, the state's largest teachers' union, declined to comment on the agreement until more details are known.

Snyder told The Associated Press last week that he favored retaining the hybrid approach but enriching the 401(k)-only option so new hires or current workers voluntarily choose it. 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).

The Michigan Public School Employees' Retirement System serves 211,000 retirees who receive monthly pension benefits and 217,000 working members.

It was not clear yet if the deal being hashed out could lower the costs in year one and allow Snyder and legislators to spend more on budget priorities. Issues to be resolved include adding to the state's rainy day fund — as previously requested by Snyder — and spending more to lower liabilities in the legacy pension system, Meekhof said.


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