Gov. Rick Snyder applauded the work completed by legislators today in passing Senate Bill 1040, marking an agreement on reforms to the Michigan Public School Employees Retirement System (MPSERS) that shrinks more than $15 billion in daunting unfunded liabilities facing the system.
"Resolving this financial burden and bringing stability and protection for continued benefits to school employees now and in the future is among the most critical pieces of legislation I will sign this year," Snyder said. "I appreciate the legislature's hard work in putting retirement costs back on a sustainable path for both school employees and taxpayers. These reforms also ensure that schools can keep critical and much-needed resources in our classrooms."
MPSERS collects and compiles employee wage, contribution, and service information from 551 school districts, 70 public school academies, seven universities, 28 community colleges, 57 intermediate school districts, and 11 libraries. As of Sept. 30, 2011, the system served 444,185 total members.
Had the legislature not taken this action, it would have meant an additional $300 million burden to schools this year. The rates school districts pay for employee retirement costs would have jumped from 24.46 percent to 27.37 percent in 2013, with projections of 35 percent by 2016. That rate has doubled since 2002, an increase equating to a staggering $1,300 per pupil between then and 2016. Today's passage of Senate Bill 1040 tackles this giant debt.
Senate Bill 1040, sponsored by Sen. Roger Kahn, will now make its way to the governor's desk for signature. The bill amends the MPSERS Act to make several substantial changes, including increasing employee contributions as well as prefunding retiree health care beginning in FY 2012-2013. Prefunding is critical because the state will now be setting aside money to meet the debt when it comes due in the future, meaning that the cost of the benefit will now be paid for at the time the benefit is accrued, putting stability back in the system.
Under the legislation, new hires will now receive $2,000 deposited into a health reimbursement account once eligibility criteria are met as well as receive up to 2 percent matching contribution into a 401(k) account for savings to be used toward the purchase of retiree health care, or for any other purpose. This replaces fully subsidized retiree health care premiums. It also allows existing members to opt out of retiree health care coverage if they choose, where those employees' 3 percent retiree health contributions made to date would be credited to their 401(k) account.
The financial relief to school districts is substantial, capping the employer contribution rate at 20.96 percent of payroll, requiring an appropriation from the School Aid Fund to pay for any excess liabilities above that amount. The legislation includes an appropriation of $4.7 million to the Office of Retirement Services for administering the changes found in Senate Bill 1040.
"The administration, legislature and stakeholders worked together to advance a plan that is fair and affordable to teachers and other school employees as well as taxpayers," added Snyder. "This is a win for our children and their education, as well as a win for our school employees who need to know that benefits are secured and on solid footing for the future."
The option of closing the Defined Benefit program to move to a Defined Contribution (DC) program will be studied further. Time will be taken to conduct a thorough review and analysis to understand the full costs and ramifications of moving to a DC plan.
"Every state is facing massive liabilities in the funding of their retirement systems," said State Budget Director John Nixon. "With the MPSERS reforms passed today and the reforms already enacted for the State Employees Retirement System, Michigan has taken a giant step forward in solving one of the biggest problems facing our state and nation."
The reasons for reforming MPSERS are the same as the reasons for reforms that have already been made to the State Employee Retirement System (SERS). Like MPSERS, SERS was on an unsustainable path for the future and reforms were made to get SERS back on stable footing for the future. Reforms made to SERS produced an immediate reduction to the State's retiree health liabilities of more than $5 billion and put the system on the path to future solvency. Solving the liabilities associated with both SERS and MPSERS, accompanied by a state budget that is balanced for the long term, puts Michigan at the forefront of fiscal responsibility.