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LANSING UPDATE

From: Ellen Hoekstra
Legislative Update
January 26, 2012

AFT Michigan Retirees Lansing Update
January 2012

In early February, we expect to see legislative proposals reducing school employees' retirement and retiree health care benefits, despite the fact that major changes already were made in both 2007 and 2010. The focus of both a House and Senate workgroup has been to "reduce the cost to school districts" and respond to the Unfunded Accrued Liability (UAAL) -- the "debt", if you will.

Although some lawmakers are viewing the recent state employee retirement benefit changes as a model, there are differences between the current law for the Michigan Public School Employees Retirement System (MPSERS) members and the pre-HB 4701 (PA 264) law for state employee retirement benefits.

These differences include:

• The fact that a great majority of school employees have been in a contributory pension plan for many years;
  
• The new changes to MPSERS enacted just last session already placed "new hires" into a hybrid pension plan with a greatly slimmed down defined benefit portion; and
• The successful efforts by ORS have kept MPSERS retiree health benefit costs from increasing.

On the Senate side, the legislators involved in the workgroup include Senators Roger Kahn (R-Saginaw), Pavlov (R-St. Clair), Jansen (R-Grand Rapids) and Walker (R-Traverse City). On the House side, the work group looking at these issues includes Representatives Moss (R-Birmingham), Rogers (R-Brighton), Olson (R-Saline) and Farrington (R-Utica). AFT Michigan's lobbying team has been actively meeting with many of these legislators.

What messages can you send to your own legislators? We suggest the following:

• Most school employees already make substantial contributions to help finance their own pension benefits;
  
• MPSERS benefit reductions were just enacted last session -- let's give these changes some time for the employer savings to accumulate;
  
• Too many people who provide work for districts and community college are not in the MPSERS system, including most employees at public school academies and increasing numbers of contractual employees, including substitute teachers; and
  
• Further reductions in school employee pension benefits will cause future hires to delay retirement until their later years, out of fear that they will outlive their pensions. Given the substantial proportion of female employees in education (who tend to live longer), this fear is realistic.
  

It is important for your state representatives and senators to start hearing from retirees right away. If you aren't sure of their names or how to reach them, go to www.legislature.mi.gov for that information.

Supreme Court Upholds Pension Tax Changes

As most retirees know by now -- having seen their pension payments reduced by withholding-- last November 18, the Michigan Supreme Court issued an advisory opinion approving the extension of the "pension tax" to state, school, and federal employees, despite their arguments that the Michigan Constitution prohibited such a change. The Court's vote was 4-3 to uphold the provisions expanding the personal income tax that can be collected on private sector pensions and removing the exemption for public sector pensions. The Court unanimously ruled that using a retiree's birth date to determined eligibility for income tax exemptions violated neither the U.S. nor the Michigan Constitutions.

The Court also ruled unanimously that the provision establishing a retiree's eligibility for exemptions and deductions on the basis of "total household resources" was unconstitutional based on the state constitutional prohibition of a graduated income tax. The opinion demonstrates which language in the act can be severed to eliminate this provision, estimated to cost the state $60 million in the 2011-12 fiscal year.

Let your legislators know how you feel about these reductions in your pensions -- and take what your legislators into account at the ballot box later this year!

3 % Reduction Unconstitutional for State Employees -- Still Pending for School Employees

Although the courts have ruled the 3% "contribution" unconstitutional for state employees, the courts have not yet rendered a verdict on the mandated contribution for MPSERS. The legal issues in the State Employee Retirement System (SERS) and MPSERS cases are very different, with the state employees' case heavily based on the constitutional authority of the Civil Service Commission. State employees have now gotten $95 million in escrow funds in their paychecks as a result of this court decision.

While it is unclear when we will hear the final verdict in the school employees' case, here is what has happened on this issue thus far. In June of 2010, a complaint was filed in Wayne County Circuit Court. In September, oral arguments were scheduled but then adjourned because the Court of Appeals had issued an opinion on another case clarifying that only the Court of Claims had jurisdiction. The case was then re-filed. In December, 2010, there were oral arguments before Judge James Giddings, whose term ended at the end of that same month without an opinion; he subsequently persuaded the Supreme Court Administrator's Office to appoint him temporarily so he could issue an opinion, which he did in April of 2011, ruling in our favor. Michigan's Attorney General then appealed to the Court of Appeals, which did not hear oral arguments until October 2011.

 

New Appointees to the Investment Advisory Committee

Governor Snyder made the following appointments to the Investment Advisory Committee, which provides advice to the Department of Treasury's Bureau of Investments:

Naif "Nick" Khouri will fill a vacancy created by the resignation of Roger Robinson. He will serve the remainder of a three-year term that expires December, 15, 2012, and he is also appointed chair of the committee. Mr. Khouri is currently the vice president and treasurer of DTE Energy. He has served as vice president and partner at Public Sector Consultants, chief economist for the Michigan Senate Fiscal Agency, chief deputy treasurer for the Michigan Department of Treasury, and as an analyst for the U.S. Congressional Budget Office.

L. Erik Lundberg, of Ann Arbor will replace David Sowerby for a term ending December 15, 2014. He is currently the chief investment officer at the University of Michigan. There, Mr. Lundberg is responsible for an endowment valued at approximately $7.8 billion-- the seventh largest endowment of a higher learning institution.

This Committee is important in providing oversight to the Bureau of Investments, the entity within the Department of Treasury that invests your pension funds. The IAC meets quarterly to hear reports from the Bureau on its performance and makes recommendations, as well as occasionally asking tough questions.

Ellen Hoekstra
Capitol Services, Inc.
January 26, 2012