Issue Background

MPSERS Reforms

This is should not be a "lame duck" issue - Tell your Senator any consideration of this nature should be done in a deliberate fashion, not crammed into the last few days of session.

Executive Director Don Wotruba issued a statement on the committee passing SB102: 

FOR IMMEDIATE RELEASE                                                                                         Nov. 30, 2016

MASB Issues Statement on Michigan Senate Committee’s Decision to Move MPSERS Bill

LANSING, Mich. – Don Wotruba, Executive Director of the Michigan Association of School Boards, issued the following statement on the Michigan Senate Committee on Appropriations’ decision to move a bill that would close the MPSERS system for new school employees:

“Only two days into the lame-duck session, the Michigan Senate is pushing legislation that would impact school employees with little or no time for public school groups to understand the true impact. This package of bills would close the current retirement system for all new public school employees and move them to a defined contribution/401k-type system. This type of change will cost the School Aid Fund at minimum $1.2 billion over the next five years, which does not account for accelerating payments or other best practices.

“In 2010, Michigan changed to a hybrid retirement plan that is part defined contribution and part defined benefit. That plan is fully funded, creates portability for those employees that don’t plan on staying in education, yet still ensures some income and stability upon retirement based on the state doing some of the investment. At the same time, we eliminated health benefits for future retirees saving the system a tremendous amount of money in the long term. While our districts struggle with the ability to attract and retain new teachers, the current hybrid plan is an attractive benefit for potential new talent that provides a sense of security during retirement, as well as being 100% funded and has no unfunded liabilities for the state.

“These reforms will affect many Michigan families and should be thoroughly discussed with public debate and input.

 

The questions we ask the Senate are:

  • Why now? What’s the hurry as the political make-up of the Legislature doesn’t change in January?
  • Can you show us this is not going to cost either schools or the school aid fund significant dollars?
  • Are you just kicking the future costs of this system to some future Legislature or school community?

“This seems like an ideologically motivated package of bills, rather than one based on good public policy.  This is a conversation suited for the new session, not for lame duck.  Is it waterfowl season yet?”

December 2016:

The Senate Committee on Appropriations has approved Senate Bill 102 which would close the current hybrid system.  But this plan has huge costs.  It is now before the full Senate for consideration.

In 2012 Michigan created the MPSERS hybrid plan and to date that plan is fully funded.  Unfunded liabilities still exist in the traditional system but strides are being made to pay it off.  Now the Legislature wants to look at closing the system entirely and putting all new school employees into a 401K plan.  

While having a 401k may not be a bad idea, there is a large cost associated with it and to date, no plan has been made to address that cost.  Without addressing transition costs, districts and the state will not see any savings from the plan and could actually see increased costs.

The Senate Fiscal Agency has done an analysis of the current proposal in Senate Bill 102 that states "Under the bill, there would be two areas of cost increases, with a third area that would be an actuarially recommended best practice in funding, whether the plan was open or closed."

Talking Points on the MPSERS Plan:

Any further reforms should be carefully measured and planned, with an eye toward long-term stability, not rushed through during lame duck.

  • Undertaking reforms of this magnitude during a lame duck session would be irresponsible and runs the risk of creating problems down the road if not done properly.
  • Such reforms will have wide-ranging effects on many Michigan workers, and must be done with proper public debate and input.
  • Lt. Gov. Brian Calley has said that it’s unrealistic to rush through further reforms during lame duck because of their sizeable scope compared to the short time allowed by lame duck,

There is no problem to fix. The MPSERS reforms that were put in place in 2012 eliminated $12 billion in debt and stabilized the system for the future.

  • These reforms, sought by Gov. Snyder, strengthened the financial health of the system by paying down debt and reducing future obligations.
  • The Pension Plus plan (Hybrid Plan) created in 2012 for school employees is 100% funded and carries less risk than the MPSERS Legacy plans.
  • The hybrid plan is financially manageable with a cost to employers of just over 4 percent of payroll. 
  • Replacing the hybrid plan with a defined contribution plan – whether it’s modeled after the state employee plan or the plan proposed in Senate Bill 102 or House Bill 5218 – will cost more, and begs the question of where the money will come from to pay for it.
  • Gov. Snyder has defended the hybrid system calling it, “A good program,” signaling he has no “intention to…talk about changing it at this point,” while acknowledging the major upfront costs associated with a change.

Closing MPERS is unnecessary and will cost the state over $2.5 billion over the next five years.

  • Closing MPSERS comes with a high price tag and does not eliminate one dime of existing liability. There will be zero savings over the next 30 years.
  • Costs associated with closing the system are estimated to be $550 million in 2017 alone, and an additional $2 billion over the next five years.
  • Closing the system would result in a 67% increase in the money paid by school districts to fund retirement. This will result in higher costs for schools in the short term, and will impact kids in the classroom immediately. 
  • Failing to address these costs would hearken back to the days of accounting gimmicks that led to Michigan’s structural deficit. We cannot afford to move backwards.