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LANSING UPDATE

From: Ellen Hoekstra
Legislative Update
Re: UPDATE ON RETIREE HEALTHCARE, AUGUST 2008
Date: August 22, 2008

There have been fewer session days than anticipated this summer, largely because negotiations on the energy package have not been finalized. The legislature will not return to the Capitol until the week following Labor Day. Obviously, there has been a lot of attention on the past and upcoming elections. We remind all AFT-Michigan retirees of the importance of helping send legislators to Lansing who support protecting and even improving school employee pensions. We urge you to get involved!

Divestiture Bills Now Law

The Governor has signed the large package of divestiture bills that were presented to her earlier this summer. The main bill in the package, SB 846 (Sen. Cameron Brown, R-Sturgis) was assigned the Public Act number 234. The other bills in the package include PA 232-239 and PA 256. Other bill sponsors were: Senators John Pappageorge, Randy Richardville, Dennis Olshove, Valde Garcia, Hansen Clarke, and Mark Jansen, and Representatives Alma Wheeler Smith and Marty Knollenberg. AFT Michigan has been closely involved in the language of the bills that affect the school employees' pension funds.

The bills relevant to public pension funds were SB 846 (now PA 234) and HB's 4854 (Rep. Alma Wheeler Smith, D -Ypsilanti, bill now PA 233) and 4903 (Rep. Marty Knollenberg, R-Troy, now PA 232). Public Act 234 creates a "Divestment from Terror Act" with respect to various state operated or state-linked funds requiring them to create a list of companies that do business with a "state sponsor of terror" and, within 9 months either sell, redeem, divest or withdraw 50% of its assets. Within 15 months, 100% of its assets shall be removed. Fiduciaries will not be permitted to acquire securities of companies that have active business operations on its list, except for indirect holdings in actively managed investment funds. The Department of Treasury is required to post information regarding investments under the Act on its website; likewise, it is to post progress in preventing new and replacing current investments in "scrutinized" companies. The two House bills amend the Public Employee Retirement System Investment Act (PA 314) to add divestment requirements specific to the Sudan and Iran commensurate with the requirements under PA 234. These new laws affect the School Employees Retirement Plan, Tier 1 of the State Employees and State Police plans, and the Legislative Retirement Plan. Local plans are not affected. These bills, like most bills in this package, took effect on August 4.

Invest Michigan! Initiative Details Announced

Governor Granholm has announced that her new $300 million Invest Michigan! Initiative will focus on small and midsized Michigan companies. The program , first announced in her 2008 State of the State message, has two components: the Michigan Opportunities Funds and the Growth Capital Fund, each of which is capitalized with $150 million from Michigan's public pension funds, as is currently permitted under PA 314 under the asset allocation for private equity. The Michigan Opportunities Fund will be looking for potential acquisitions and buyouts in the $10 million to $40 million investment range, and will be managed by Beringea LLC and Credit Suisse. The Growth Capital Fund will directly invest $2 to $7 million in venture capital and expansion-stage companies, and will be managed by Glencoe Capital.

Michigan's investment program had previously focused on early growth companies and has received some praise in the business and general press for its emphasis on second stage companies already based in Michigan. As a matter of fact, private equity has performed well for the school employees' retirement fund. However, as AFT President David Hecker has noted, the advisory committee was comprised solely of business leaders, with no representation from those whose funds are being invested.

Bill Introduced to Diminish Future Community College Employees' Pension Benefits

On July 24, Sen. Kuipers (R-Holland) introduced SB 1450, which was referred to the Senate Education Committee that he chairs. This bill proposes to remove newly hired community college employees from the Michigan School Employees' Retirement System (MPSERS). Similar legislation has been introduced before, at the request of the Michigan Community College Association. It has been opposed both by unions affecting community colleges and by public school management organizations.

AFT Michigan will strongly oppose this bill, which would effectively create a two-tier retirement plan for community college employees and probably be the demise of retiree health benefits for the "second tier." At a senate hearing in Lansing , well prior to the bill's introduction, the executive director of the Michigan Community College Association testified that the organization supported the bill because it would "save community colleges money if we do not have to pay for retiree health care." Retire and active members are urged to write to their state senators to oppose this bill.

New Proposal Affects Term Limits and Legislators' Retiree Health Benefits

On July 16, Rep. Mark Meadows introduced HJR EEE in apparent response to a recent ballot proposal called "Reform Michigan Government Now" that has been the subject of controversy. The proposal would eliminate retirement health benefits for all state legislators, starting on January 1, 2009. The proposal also docks legislators' salaries for each day they do not attend session, and "very significantly" eliminates term limits for state legislators. The proposal was sent to the House Committee on Oversight and Investigation.

Prepared by Ellen Hoekstra, Capitol Services, Inc.