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LANSING UPDATE

From: Ellen Hoekstra
Legislative Update
April 11, 2011

Retiree Update - AFT Michigan
April 11, 2011

AFT Michigan has been in the forefront of opposing Governor Snyder's proposed taxation and budget proposal, which reduces funding for public schools and higher education while reducing taxes for businesses and increasing taxes for individuals. The two groups that seemed especially targeted by the shift to individuals are seniors and low income individuals. One of the hottest issues has been the proposed taxation of pensions which the Senate most outspokenly opposed -- with 11 of the 26 member Republican caucus telling the press they were "no" votes on the Governor's proposal. Last month, Senate Majority leader Randy Richardville (R-Monroe) had proposed an alternative plan under which only future retirees would see their pensions taxed.

Both senior and labor organizations have staged major rallies at the Capitol to express their opposition to these tax shifts. The pension exemption elimination was one element of HB 4361 (Rep. Jud Gilbert, R-Algonac) which has had a number of hearings before the House Taxation Committee, which Rep. Gilbert chairs. The pension tax exemption elimination did not extend to Social Security nor to military pensions but would have removed the current exemptions to defined benefits plans, IRA's, annuities and those 401 (k) distributions that are attributable either to employer contributions or to employee contributions matched by the employer.

Under current state law, federal, state and local government pension/retirement income is fully exempt. Private pensions are exempt up to $45,120 for a single filer and $90,240 for joint filers, with these amounts indexed to inflation.

Earlier this month, the Governor and top legislative leaders announced a conceptual agreement that included a modified pension tax proposal but another $150 million in budget reductions beyond those proposed in the executive budget proposal.

The new pension tax proposal has three tiers: taxpayers born before 1946, those born between 1946-1952, and those born 1953 and later. The first group would see no changes from the status quo. The second would have retirement income up to $20,000 single and $40,000 joint exempt, with income beyond that level taxed at 4.35%. The third tier would see their retirement income (except for military pensions and Social Security) taxed at 4.35% until they turn 67, after which time they would qualify for a senior income exemption of $20,000 for single filers and $40,000 joint, regardless of income source.

Despite the fact that there is agreement at the leadership level, there remains some question whether there are enough votes in the Senate to support the deal without further changes. Meanwhile, during the last week of April, the House Taxation Committee has scheduled three days of hearings to take up the latest leadership "deal", as described above. The main bill number remains HB 4361 (Gilbert), which amend the Income Tax Act. Other bills before the committee include HB 4481 (Gilbert), which amends the Public School Employees Retirement Act to delete the language in that law which makes school employees' pension exempt from state income taxes. To implement the changes in HB 4361, a number of other laws would have to be amended, and HB 4481 is one of those.

Let your legislators know how you feel about having pensions taxed-by phone, or email.

 

Other Bills and Issues:

SB 121 (Sen. Bruce Caswell, R-Hillsdale), would amend state law to allow part-time faculty and administrators at community colleges to opt into the "optional" retirement plan currently available under the law to full time faculty and administrators. This bill was reported out of the Senate Appropriations Subcommittee on Retirement to the full Senate Appropriations Committee.

HB 4420 (Rep. John Walsh, R-Livonia) is in the House Oversight, Reform and Ethics Committee. This bill would permit community colleges to withdraw all newly hired employees from MPSERS. Unlike SB 121, these individuals would not necessarily be placed in any retirement plan.

Senator Rick Jones (R-Grand Ledge) has spoken to the press about wanting to put all school employees into a defined contribution plan. Discussions of this kind have been exacerbated in part by the projections for MPSERS employer contributions, expected to go as high as 27.27% by FY 2012-13 for employees hired before July 1, 2010.