School Employees Defined Contribution Fight: Round Two

December 30, 2013

On the last night of session before the holiday recess, a seven bill package (SB 722-728) affecting school employee retirement benefits was introduced in the Senate, with the primary goal of moving all new hires into a defined contribution plan. The bills were sponsored by many of the senators who were on the “pro-defined contribution” side of the Senate Republican caucus during the legislative battle that led to PA 300’s enactment.  At that time, thanks to the hard work and great coordination of CSR’s member organizations and individual members, we blocked their efforts to move new hires into a solely defined contribution plan.

By way of recent history, newly hired school employees may choose between the Pension Plus Plan (a hybrid defined benefit plus defined contribution plan) and the Defined Contribution plan.  In the Pension Plus Plan, “Tier 1” refers to the defined benefit part of that plan and “Tier 2” to the defined contribution part of it.

The bills are: SB 722, sponsored by Sen. Arlan Meekhof (R-West Olive); SB 723, Sen. Phil Pavlov (R-St. Clair); SB 724, Sen. Joe Hune (R-Hamburg); SB 725, Sen. Mark Jansen (R-Gaines Township); SB 726, Sen. Bruce Caswell (R-Hillsdale); SB 727, Sen. Mark Jansen (R-Gaines Township); and SB 728, Sen. Patrick Colbeck (R-Canton Township).

CSR anticipates hearings on these bills, all of which were referred to the Senate Appropriations Committee, early next year.  Most likely, the hearings will be held jointly by the Senate Appropriations Retirement Subcommittee, chaired by Sen. Jansen, and the K-12 Subcommittee, chaired by Sen.  Howard Walker (R-Traverse City).  See below for contents of each of these bills:

  • SB 722:  Permits each reporting unit to set up its own Tier 2 (defined contribution) contract or account plan for school employees.  The legislation specifically says that neither the state nor the employer has a duty to monitor the performance of the alternative provider nor do they have any liability to employees for “damages relating to the performance of the alternate provider.”  The alternate provider shall offer the “same benefits and vesting provisions” and is prohibited from offering a defined benefit option.
  • SB 723:  Creates a technical fix to align with SB 722.
  • SB 724:  Prohibits initiation of purchase of service credits, after June 30, 2014, except for active duty military service credits.
  • SB 725: Eliminates duty disability retirement service for employees hired after June 30, 2014.
  • SB 726:  Reduces health insurance premium requirements for school retirees below 133% of federal poverty levels in each preceding year to 10% rather than current 20%.
  • SB 727: Technical changes to align with other provisions in the previous bills by clarifying that employees who are hired on or after July 1, 2014 are not members of Tier 1 (the defined benefit part of the hybrid plan) and are not eligible to purchase service credits (except for active duty military) or receive duty disability pensions but are immediately invested in employer contributions under Tier 2 (defined contribution).
  • SB 728:  Clarifies that the asset allocations for investments under PA 314 (the act which governs how defined benefit public pension funds can be invested) for new hires under Tier 2 do not apply to them.  This is currently true of the Tier 2 (defined contribution) portion of the hybrid plan.

Clearly, this package of bills—and it should be seen as such—presents a clear threat to the retirement security of school employees.  With the exception of Senator Caswell’s bill, all of the other bills would directly reduce the retirement security of school employees hired on or after July 1, 2014.  To the extent that reducing membership of the defined benefit system negatively affects the number of members in the MPSERS system, it directly affects members in the defined benefit and hybrid plans by reducing, over time, the assets of the system and thus affecting investment options as well as the number of people with a stake in protecting retirees.

CSR urges its member organizations to inform their membership about this legislation and encourage them to contact their state senators in opposition to it.

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