Senate adjourns without vote on teacher pensions

Posted at 6:28 PM, Nov 30, 2016

LANSING, Mich. (AP/WXMI) — The Republican-controlled Senate adjourned Wednesday evening without voting on legislation that would close the pension system to newly hired school employees and give them a 401(k) benefit.

Amber McCann, spokeswoman for Majority Leader Arlan Meekhof, said Wednesday GOP senators have more questions about conflicting costs estimates associated with the move.

A Senate committee narrowly approved the legislation earlier Wednesday despite objections from Republican 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 legislation would apply to school workers hired on or after July 1, 2017.

Republicans say the Michigan Public School Employees Retirement System is "unsustainable."

"We’re transforming the public school retirement system, moving from an old dinosaur of a system that’s underfunded without any guarantees of these benefits being available for retirees in the long run, " Sen. David Hildenbrand, R-Lowell, told FOX 17, adding he "respectfully disagreed" with Snyder's position on the legislation.

“The new plan would be totally owned by the employee, invested by the employee, and portable so the employee can utilize for their entire life.”

Since mid-2010, new hires have qualified for a "hybrid" plan, with a blending of a traditional pension and a 401(k). Older teachers receive a pension.

Democrats are unified against the measure.

"I think it’s about attacking teachers and I think it has absolutely nothing to do with the reality of what’s going on with the state," Sen. Curtis Hertel, D-East Lansing, told FOX 17 on Wednesday.

"I’m not sure what we’re doing here, but we’re certainly not fighting for teachers."

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 is happening 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.