Michigan can’t solve the underfunding of its teacher retiree health care account by demanding teachers contribute a small amount from their paychecks, now that the Michigan Supreme Court has ruled the 2010 levy unconstitutional.
Teachers will get a refund of the money collected between 2010 and 2012, when the tax was suspended pending resolution of the court challenge. The state had held $550 million in paycheck deductions in an escrow account during the legal fight. The money refunded will include about $4 million in interest.
The tax is now gone for good, but the shortfall remains. And so the state will have to find a different approach to filling it.
The 3 percent levy was an attempt to help pay for retiree health care. The unanimous 6-0 decision will put that money back into teachers’ pockets. Gov. Rick Snyder, who has fought in support of the law enacted during the Granholm administration, said he is pleased that the matter has been decided.
“The funding has been held in escrow, so Michigan will continue to have a balanced budget. We will not need to raise new revenue or remove funding from other priorities to refund the money that was collected for retirement health care,” Snyder said in a statement.
The money will be given back to more than 275,000 teachers and school employees like a hefty tax return.
Though the ruling settles this case, the problem of retiree health care is still very much at issue. Strides have been taken to solidify the program, and they must continue. There was good reason for Snyder to pursue former Gov. Jennifer Granholm’s law. The state budget office has estimated the unfunded liability for retiree health care in the school employee retirement system (MPSERS) is more than $9 billion.
Reforms in 2012 to teacher retiree benefits changed the 2010 law to say teachers could opt out of the health benefits in retirement, meaning they had no obligation to contribute the 3 percent. And the retiree health care premiums for new teachers (and current teachers who opted in) were eliminated in lieu of supplemental contributions from the state placed into a 401(k) account that could be used toward health costs in retirement.
That helps in the long run. But the current obligations haven’t disappeared.
Undoubtedly, more state resources will have to be used to meet health care obligations.
This would be a good time for both the state and teachers to take an honest look at actuarial tables and make sensible adjustments in retirement ages so that teachers are not collecting retirement benefits for more years than they spent in the classroom.
In addition, the state has leeway to make changes to retiree health benefits.
As James Hohman, fiscal policy director at the Mackinac Center, has observed: “There is a state constitutional guarantee for pension benefits that have been earned. State and local governments can, however, trim post-employment health benefits — not just for future retirees but for current ones as well.”
It was a worthy idea to require teachers to invest more in their own post-retirement health care. But as the court instructed, the state will have to find a new approach to tackling the costs.