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

Posted at 5:39 PM, Jun 08, 2017

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 $495 million over two years for initial 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. Legislators may hold hearings on the legislation as early as next week.

Democrats and organized labor have criticized the push to exclude new teachers from a pension, pointing to huge upfront costs and saying it would exacerbate a teacher shortage. They have 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.

House Minority Leader Sam Singh, D-East Lansing, said he wants to see how much it would cost to close one hybrid system and open another one.

“In the end, if we’re taking money out of the classroom to do this, I want to make sure it’s the right thing for us to do,” he said. “As of right now, every proposal I saw before this was jeopardizing classroom dollars and resources.”

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).

Since 2012, about 11,600, or 20 percent, of new school workers have voluntarily selected a 401(k) over the plan that has a pension component. 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 transition costs 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.

On Thursday, House-Senate committees finished approving budget bills that were crafted without much recent input from Snyder, including major areas such as education, health and social services.

K-12 districts would get between $60 and $120 more in per-student state aid and see a big boost in funding for their at-risk students. Cleanup of polluted sites would be cut, drawing criticism from environmentalists already worried about the Trump administration’s proposed federal cuts.

Senate Appropriations Committee Chairman Dave Hildenbrand, R-Lowell, said the budget could still be adjusted changed after talks with the Snyder administration as early as Monday depending on how the pension discussions go.