Government Pension Reform Moves Forward

Date: June 13, 2017

The stalemate between legislative leadership and the Governor regarding the budget and efforts to address the teacher’s pension fund – Michigan Public School Employees Retirement System (MSPERS) – has ended with a tentative agreement on a path forward for closing the Michigan Public School Employees Retirement System (MSPERS). NFIB has been actively involved in negotiations with all parties to find a solution to this impasse. Because of these efforts, a tentative framework on how to restructure the teacher pension system is now a part of negotiations heading towards wrapping up the 2017-18 fiscal year budget in the coming weeks.

NFIB members strongly support ending the unfunded liability of generous government pension plans because they know that sooner or later they will be asked to bail them out by having to pay higher taxes. When asked: “Should government employee pensions be converted to defined contribution plans?” 92 percent of respondents said “YES”, 6 percent said “NO” and 2 percent were undecided. A copy of the survey question can be found HERE.

The outline of the new pension proposal is that the current “hybrid” pension plan would close to new teachers and they would, instead, be automatically enrolled in a better 401(k) defined contribution plan. This plan would be similar to what state employees now have. Under the plan as proposed the state contributes 4 percent of the employee’s salary, local districts contribute 3 percent and the employee can match up to 3 percent for a potential total of 10 percent.

New teachers could opt out of the new 401(k) plan and receive a less attractive defined benefit plan. However, if the new defined benefit plan did not meet certain performance and funding standards it would automatically be closed to new participants.

While the new pension framework represents significant progress in addressing the current unfunded and unsustainable pension plan, the details of what constitutes “performance and funding standards” and how the formula for triggering closure of the fund would work, remain important details that could scuttle the deal. One of the important safeguards that NFIB has made clear is a “deal breaker” is that any agreed upon trigger formula and performance standards be made part of the actual legislative language, and not left to rule making by the state Office of Retirement Services (ORS). Past experience has shown that state agency rule making is often susceptible to political manipulation and a future governor could change key provisions of the law that would thwart the intent of the current legislature and Governor.

Stay tuned as NFIB will be working to continue the progress on this issue.

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