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Legislature Passes Contentious Teacher Pension Reform

Jun 16, 2017

On Thursday, the House and Senate passed legislation reflecting an agreement struck between House and Senate leadership and Governor Rick Snyder, which will reform the current public school employee retirement system.  “Prior to the agreement between leadership, the House and Senate gestured their willingness to withhold completing the budgets until later this summer, or even fall, if changes to the public employee’s retirement system weren’t made.  While first against changing the system, following several discussions and compromise, Governor Snyder supported the proposal making the reforms,” stated Sean Mann of MLC.

Under the proposal, employees would decide between a 401k or a pension, however the legislation provides incentives for them to choose the 401k option.  Furthermore, an employee is automatically placed in the 401k, unless they elect the hybrid plan.  In the new 401k plan, the employer contribution would be 4% of salary and an additional match of employee’s contributions up to 3% of their salary.  The plan also includes a trigger that would close the hybrid system to newly hired employees if the pension system is funded below an average of 85% during a five-year period.  Both bills include a $5 million appropriation to implement the changes, making the legislation referendum proof.

The proposal is intended to get the unfunded liability in the current system down.  Supporters of the legislation state the plan will do just that, however, opponents of the proposal are stating the plan will have an opposite effect.  Those opposed to the new plan state that it doesn’t pay down current liability costs and it creates instability in retirement for employees.  Additionally, concerns were expressed over the ability to meet the rate of return given the volatility in the markets.  On the other side, supports have lauded the plan, stating that it will provide public school employees with more choices in deciding how they want to plan for retirement.

The House and Senate bills will be swapped between the chambers where a final vote on the reform is anticipated to occur next week.

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