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LANSING UPDATE

From: Ellen Hoekstra
Legislative Update
February 2009

Public Pensions: Community College Opt Out Bill Dead for 2008

Despite the various legislative efforts to reduce public sector pensions, including school employees', no legislation passed both houses last session that would have a negative effect on future retirees. AFT Michigan was particularly concerned about SB 1450, the legislation that would enable community colleges to pull new hires out of MPSERS. Thanks to continued strong opposition, that legislation never came to a vote in the Senate. We do expect it to return next session.

However, we also will need to be alert on other fronts--former representative Lorence Wenke is working on a ballot proposal that would require both current employees and retirees to pay 25% of their health care coverage. And the Michigan Chamber of Commerce (in concert with some of their local chambers) continue to swipe at school employees' pensions: they propose eliminating the "buy-in" for school employees' retiree health care; creating what they list as a "define benefit" retirement for teachers and tightening eligibility; and creating a graded premium for school employee health care. Apparently, they do not realize that we already have a defined benefit retirement system for all school employees and that the legislature already imposed the graded scale premium! It appears that they could do better research.

One bill that did pass and was enacted was HB 6500 (Rep. Bob Jones, D-Kalamazoo). This legislation amended PA 314 and would provide the Department of Treasury's Bureau of Investments with more flexibility to invest in private equities, a sector that has been relatively profitable during this very difficult time for all investors. The new law, PA 425 of 2008, takes immediate effect. It includes a detailed definition of private equities and restricts this asset class to a 30% of total assets cap. The new law also permits the Bureau to participate in certain kinds of investment entities, such as limited partnerships, that currently it can only form to invest in real or personal property. This particular change makes a great deal of sense, as there may be good investment opportunities that others have created and our retirement fund should not have to "form" them to take advantage of the potential income.

On a related note, Michigan has been appointed lead plaintiff in the national securities class action lawsuit against Bear Stearns. The plaintiffs contend that the company misled pension funds and other investors by misleading them about their exposure to the subprime market from late 2006 to March 2008. The state's retirement funds lost $62 million because of Bear Stearns' actions. State Treasurer Bob Kleine and Attorney General Mike Cox hope to maximize the recovery for victims by handling the litigation and negotiating any potential settlement to offset these losses to MPSERS and the other funds managed by Treasury.

Additionally, we should note that on January 16, the co-chair of the Legislative Commission on Government Efficiency suggested that lawmakers take the opportunity of receiving federal stimulus funds to address the state's structural needs, such as properly funding health care benefits for public retirement systems. We expect the funding of retiree health care to be a continuing issue for the legislature this session, with a package of House bills already introduced on this topic--HB 4071-4080. The House Judiciary Committee is taking testimony on this package of bills that is designed to set up a trust, with the long view being to make it easier to prefund retiree health benefits, a goal that AFT Michigan strongly supports. We expect the bills to be reported out of committee onto the House floor before the end of February.