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LANSING UPDATE

From: Ellen Hoekstra
Legislative Update
July 26, 2012

RETIREE UPDATE

Senate Action Sends MPSERS Bill to Conference

The Senate did not concur in the House version of SB 1040 when the legislature was in session on July 18. The vote to "non-concur" in the less onerous House version was 16-22, with 10 Republican members joining all 12 Senate Democrats. However, senators who voted "no" did so for different reasons, with some thinking that the bill did not shift enough costs to retirees and employees and others stating that it went too far. One senator was specifically concerned about the increased health care costs to retirees - 20% for all retirees, except that those who were Medicare eligible by January 1, 2013 would pay 10%. The version of the bill that had originally passed the Senate was even worse - 20% for all retirees.

Non-concurrence automatically sends the bill to a six-person conference committee, whose members have not yet been appointed. The Senate Majority Leader will select two Republican senators and one Democrat and the House Speaker will do the same. Under the legislature's rules, the conference committee is supposed to come up a new version of the bill that reconciles the differences between the House and Senate-passed version of the bill.

AFT Michigan is concerned about the impact of the bill on retirees, current members, and future members. The Senate-passed version of SB 1040 had moved newly hired employees into a defined contribution plan - a 401K - rather than into the hybrid plan that was enacted in 2010. The hybrid plan is a "combo plate" of a defined benefit plan (such as current retirees have) and a defined contribution plan, and provides more security in retirement than a "pure" defined contribution plan.

Recent figures from the fiscal agencies and Office of Retirement Services suggest that moving new hires into a defined contribution plan would also be very expensive for school districts and community colleges. Over a thirty year period, those increased costs would add up to as much as $8-10 Billion more, depending on whether the contributions to the "closed" plan were done the way that is generally recommended for public plans.

$8 to 10 Billion is a lot to pay for a pension system that is less secure. Please let your legislators know that as they continue to work on SB 1040, they should not increase health care costs on current retirees and they should not spend $8-10 Billion more for a less secure defined contribution pension plan for new hires.

Ellen Hoekstra
July 26, 2012