Snyder agrees to ‘tentative’ deal on teacher pensions

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Republican Gov. Rick Snyder and GOP legislative leaders agreed in concept on a compromise teacher pension reform deal that would steer new hires toward 401(k)-style retirement savings plans but retain a hybrid pension option.

Snyder confirmed the “tentative framework” Thursday as he left a closed-door meeting with Senate Majority Leader Arlan Meekhof and House Speaker Tom Leonard, who called it a “tentative agreement.”

“We still need to continue to work out some things, (but) I think it provides a better retirement for school employees,” Snyder told reporters.

The pending deal sets the stage for a final budget deal by the end of June, Snyder said. Republican legislative leaders had frozen the governor out of budget negotiations when he refused to back their initial teacher pension reform legislation.

Meekhof of West Olive and Leonard of Dewitt have been pushing to close the 2010 hybrid pension system to new hires, citing the risk of adding to $29.1 billion in unfunded liabilities associated with the state’s legacy pension system.

But the hybrid plan is fully funded on paper. Snyder opposes closing it and had balked at steep transition costs associated with leadership’s previous proposal, which the House Fiscal Agency estimated could cost an additional $410 million in fiscal year 2019 and more than $46 billion over a 40-year period.

The developing plan would stop short of closing the hybrid plan to new hires but may include a trigger to force closure under certain circumstances.

While final details are still being ironed out, Meekhof and Snyder confirmed the plan would generally see new teachers automatically enrolled in 401(k)-style retirement savings plans. But the instructors would have the option to instead choose a revised hybrid pension with a defined contribution component.

The deal would enrich the 401(k)-style plans teachers have had the option of taking since 2012. The new offering would match state employee and legislator pensions, allowing for state and school district contributions of up to 7 percent of a teacher’s salary if the teacher also kicks in 3 percent.

“For most folks, you’re going to look at it and say that is the best option, it gives me the best opportunity in the long term to earn a retirement,” Meekhof said.

Leonard declined to discuss details but guaranteed public committee hearings on the agreement will be held when it is finalized.

Democrats were not included in teacher pension negotiations and are awaiting details. They had opposed closing the hybrid pension but had expressed a willingness to consider other reforms.

“If you want to try to solve a problem that is facing our community, why wouldn’t you want to bring all voices to the table?” said House Minority Leader Sam Singh, D-East Lansing. “It’s a shame that they’ve only decided to bring Republicans voices at this point in time. This is an issue that’s going to face teachers all across our state.”

It’s not clear what kind of changes would be made to the hybrid pension plan, but pension advocates fear reduced benefits would leave the hybrid plan as an untenable option for many teachers and school employees.

Retirement plans now offered to state employees are “inadequate” for many workers, said Todd Tennis of the Coalition for Secure Retirement. He said it would take 401(k) contributions of 15 to 20 percent to provide the same type of benefit as a pension.

“Instead of having a choice between a really awful 401(k) or a pretty decent hybrid, new hires are going to have the choice between a pretty awful hybrid — depending on what they do — and still a pretty awful 401(k),” Tennis said.

He also argued the tentative plan would likely still cost the state a considerable amount of money even if Snyder and legislators “pretend” they are not closing the hybrid system.

The Snyder administration has repeatedly warned of looming budget pressures as the governor pushed back against the earlier pension reform plan, but Snyder told reporters he is comfortable with the new agreement.

“It’s something that, assuming it all comes together, I would be supportive of,” he said.

House and Senate Republicans have been working to trim $475 million in spending from the governor’s proposed budget for fiscal year 2018 to pay for pension reform transition costs.

Bicameral conference committees on Thursday finished work on the state budget, but Snyder’s return to the negotiating table could prompt further changes as he and legislative leaders revise cost assumptions for the new teacher pension plan.

A K-12 education budget advanced Thursday would set aside $495 million to cover two-year pension reform costs, including $295 million from the school aid fund. Democrats unsuccessfully proposed putting those dollars into classrooms and road repairs.

Senate Appropriations Chairman Dave Hildenbrand, R-Lowell, said he expects the new pension agreement will cost less than $495 million, meaning additional money may be pumped back into the budget before the Republican majority sends it to Snyder’s desk.

“It’s going to change based on whatever gets passed” on pensions, Hildenbrand said. “I’m still trying to get my arms around that.”

The K-12 budget would increase per-pupil funding by between $60 and $120 per district, up from the governor’s proposal of $50 and $100. It would increase and expand funding for at-risk students by $120 million, up from the governor’s proposed $100 million.

The Legislature’s budget would scrap some of Snyder’s more unique proposals, including plans to fund high school students at a higher level and provide extra funds for districts struggling with declining enrollment. It retains funding for cyber charter schools and private school mandate reimbursements Snyder has proposed reducing and eliminating, respectively.

A general government budget bill advanced Thursday would cut $5.5 million in spending compared with the current year, including $71 million from the general fund. It does not include a $20 million deposit into a statewide infrastructure fund Snyder had proposed following a Macomb County sewer collapse and the Flint water crisis.

The legislative budget would cut $9.7 million from the state Department of Environmental Quality, which environmental groups argued would be problematic considering cuts proposed at the federal level by GOP President Donald Trump.

The environmental department budget does not include $14.9 million Snyder had proposed to continue the Clean Michigan Initiative, a pollution control grant program that had been funded through voter-approved bonds that are now drying up.

The budget would increase total funding for the Department of Health and Human Services but cut state general fund spending by $75 million. It does not include $5.6 million the governor had proposed for expansion of the Pathways to Potential program, which places social workers in schools to work directly with troubled students.

“There’s work to be done on the budget, but we’ll be working with the chambers to get something done by the end of the month,” Snyder said.