Snyder, GOP leaders reach pension-budget deal
Lansing — Republican Gov. Rick Snyder and GOP legislative leaders on Tuesday finalized a deal to reform Michigan’s teacher retirement system and complete the 2018 state budget, setting the stage for a flurry of activity ahead of a planned summer break.
Under the agreement, new public school employees would be steered toward enhanced 401(k)-style retirement savings accounts but could still choose a revised “hybrid” pension that includes guaranteed lifetime benefits but would require larger employee contributions than the current plan.
Senate Majority Leader Arlan Meekhof, R-West Olive, and House Speaker Tom Leonard, R-DeWitt, had pushed to close the hybrid pension system to new hires. They froze the governor out of budget talks last month when he refused to back that plan.
The compromise legislation would not immediately end the pension option. But the hybrid system could close if it is less than 85 percent funded for two consecutive years. It is fully funded today, but Republicans are wary of adding to the $29.1 billion in debt that has accrued in the state’s legacy pension system.
“If folks that are running that system have their best interests at heart to make sure it continues to grow and thrive, then there won’t be a problem,” Meekhof said. “But if it doesn’t perform at a level of those safeguards, then it’s not helping the employee or the state, then likely it would be closed.”
While bills have not yet been made public, the Senate Education Committee is set to take up a revised teacher pension proposal Wednesday at 8 a.m. The House Education Committee is scheduled to do the same at 8:15 a.m., leaving opponents and proponents with little time to review the bills before debate begins.
Floor votes are possible this week as legislators work to complete the pension reforms and state budget by the end of June.
The Michigan Education Association and Michigan chapter of the American Federation of Teachers said that without seeing the bill language, it is impossible to know how much the plan will cost or whether it is good public policy.
“However, based on what’s been publicly reported, this seems to be little more than a shell game that goes about closing the hybrid pension plan in another way – something that is certain to cost Michigan taxpayers billions in transition costs,” they said in a joint statement.
The new proposal would improve the 401(k)-style plans teachers can choose today, increasing the maximum employer match from three percent to seven percent, much like retirement plans provided to state employees and legislators since 1997.
A public school employee who chooses the hybrid pension option would be required to split costs with their employer, according to an outline circulated at the state Capitol. They would also lose the option to buy service credits.
The plan would lower the assumed rate of return on investments for the revised hybrid pension, and it could gradually increase the retirement age for public school employees if mortality assumptions change and lead to new unfunded debt.
“I truly believe that this ultimately is going to provide a better retirement option for our teachers,” Leonard said after outlining the plan for reporters. “It’s going to protect taxpayers because, most importantly, we will stop digging this hole, which has been one of our top priorities as we’ve been working on this.”
Fiscal agencies are still working to calculate longterm cost estimates, but legislative leaders expect the new pension proposal will cost less than their original plan, which the House Fiscal Agency pegged at $46 billion over 40 years.
The Legislature set aside $495 million for initial costs in its 2018 budget, but it is expected that a portion of that money will now be used for deposits into infrastructure and “rainy day” funds that had been cut from the governor’s $56.3 billion budget proposal.
“I think this is going to be another good, solid budget,” Snyder said Tuesday afternoon. “There’s a lot of positive give and take, and I think you’ll see that in the outcome of the budget.”
Democrats opposed the earlier pension reform plan and remain wary of the new version. Senate Minority Leader Jim Ananich, D-Flint, was briefed on the plan Tuesday but said he still wants to see full details to determine what the impact would be on the classroom.
“I continue to reject the premise that pensions are bad and our educators don’t deserve a secure or stable retirement,” Ananich said in a statement. “The current retirement system has helped Michigan draw in top-notch educators.”
Snyder and the GOP-led Legislature have completed the budget by mid-June each of the past six years, but with pension reforms up in the air, the Senate recently added tentative session days through the end of June and into early July.
Snyder is also urging the state House to take up a Senate-approved business incentive plan before legislators leave town for an annual two-month break. As first reported by The Detroit News, he is attempting to convince Taiwanese technology manufacturing Foxconn to build a planned LED factory in Michigan.
Snyder acknowledged he recently traveled to Japan, which his office had not confirmed, but has not named the company or discussed details of those negotiations, citing non-disclosure agreements.
“I was there for a dinner and a day,” Snyder said of his trip to Japan.
The so-called “good jobs” package the governor is pushing for would allow qualifying companies that create hundreds of new jobs in Michigan to capture some or all of the income taxes paid by their new hires for up to 10 years. A House committee hearing is planned Wednesday but a vote is not expected.
The business incentive plan is not directly tied to teacher pension and budget negotiations, Snyder said, but “it’s important we all work together and get good things done. There’s not a lot of time left.”
Reporter Michael Gerstein contributed