Legislature OKs pension reform over teacher protest
Lansing — Michigan’s Republican-led Legislature on Thursday approved a controversial overhaul of the state’s teacher retirement system that would steer new public school employees into a 401(k)-style contribution plan rather than a hybrid pension most join today.
The floor action came as teachers gathered in the state Capitol to protest the legislation and urge no votes, arguing the plan agreed to by Gov. Rick Snyder would weaken a hybrid pension option they say is an important tool for attracting young talent to a profession already marked by shortages.
But Republican supporters contend the proposal would ultimately benefit new public school employees, help the state avoid further pension debt and ensure the state’s ability to honor pension promises made to current teachers.
“It’s a better system for new teachers. It’s a better system for the taxpayer, and it offers predictability,” said sponsoring Sen. Phil Pavlov, R-St. Clair Shores. “Hopefully going forward, we’ll be able to drive more dollars into the classroom because of the reforms we’re working on.”
The Senate approved its plan in a 21-17 vote with opposition from six Republicans and all 11 Democrats. The House approved its own nearly identical version of the Senate bill 55-52, with seven Republicans and all Democrats opposed.
The legislation “is a direct attack on public school teachers and public education here in Michigan,” said Sen. Curtis Hertel, D-Meridian Township. “For everything our teachers do for our state, they deserve at least a secure retirement. This legislation steals that from them.”
One of the two nearly identical pension reform plans will require an additional vote in one of the chambers next week before it heads to Snyder’s desk. A bill can’t become law in Michigan until it has passed one chamber, been printed and laid over in the other chamber for at least five days.
The GOP proposal is intended to make 401(k)-style plans more appealing to new hires and would automatically enroll public school employees in the retirement savings accounts unless they opt out within 75 days. Participants could qualify for an employer match of up to 7 percent, up from 3 percent today, if they kick in 3 percent themselves.
New teachers would still have the chance to select a hybrid pension option with guarantee lifetime benefits, but the plan would be less generous and less predictable than the current offering. Participating employees would be required to make larger contributions if the system becomes underfunded, and the new hybrid pension system could close if it is less than 85 percent funded for two consecutive years.
Reform proponents say those “safeguards” would help the state avoid adding to the $29.1 billion in unfunded liabilities that have accrued in a legacy pension system closed to new hires in 2010. The legislation does not directly pay down that debt, but a separate budget deal up for a vote next week includes $200 million in extra payments.
“These longterm liabilities in Michigan and across the country ... they hang like the sword of Damocles over our heads,” said Rep. Chris Afendoulis, R-Grand Rapids.
The current hybrid pension plan is fully funded on paper, and critics say the proposed changes would make it a bad option for teachers, leaving new hires to rely on a 401(k)-style plan that could be impacted by market forces outside their control.
“There’s too much risk that is unmeasurable that’s going to be placed on the employee in the new hybrid plan,” said Rep. Martin Howrylak, R-Troy, who voted against the plan. “Whether it’s funded or unfunded is not entirely their fault, to be honest with you.”
Teachers protesting the bill also complained about potential risk for new hires and argued the shift away from pension guarantees would hurt the ability of local school districts to attract teachers.
“We have a hard enough time getting subs and teachers as it is in our district,” said John Anderson, 58, a 31-year government and world history teacher at Jackson County Western High School.
“When I first started back in 1990, we would get 400 or 500 or 600 people for every job opening. Now we’re lucky if we can get three or four. Our youth just don’t want to go into teaching because there’s no financial stability.”
Public school employee and union groups oppose the legislation. Some protesters at the Capitol on Thursday were seen carrying talking points from the Michigan Education Association, which later blasted the floor votes.
“The rushed passage of this legislation today — over the objections of educators from across the state who came to Lansing at the beginning of their summer break — is a travesty that will not bode well for future school employees, the students they serve or the fiscal health of the state,” MEA President Steve Cook said in a statement.
Rep. James Lower, R-Cedar Lake, suggested unions were distorting facts. The plan is in the best interest of teachers, he said, because it would also increase employer contribution rates for public school employees already enrolled in 401(k)-style plans.
“This is good for teachers,” Lower said. “If I was a teacher, I’d resign my union membership today.”
House Democrats proposed alternative legislation that would reduce the assumed rate of return on investments in the old pension system, rather than just doing so for the newer hybrid system the Republican bill would create.
“It’s a brand new plan with brand new cost,” said House Minority Leader Sam Singh, D-East Lansing, “and those costs will now end up being borne by new teachers and school districts. What it does is take more dollars and resources out of the classroom.”
Singh told reporters later that he thinks the overhaul is just window dressing.
“Listen, the current existing plan before they put these triggers in place was completely funded. So, again, this was just dressing to appear like they did something. What I think is going to end up happening is there will be so much confusion by a teacher taking a look at this ... they might now no longer choose this program,” he said.
The Senate Fiscal Agency estimates the teacher retirement plan would cost $24.1 million in the next fiscal year and $265.2 million over the first five years, with annual costs likely rising each year after that.
The 2018 state budget legislators are expected to finalize next week includes $255 million for the pension reform plan, including $55 million to cover costs in the first two years and $200 million in extra debt payments.
Public school employees can currently qualify for pension benefits at 60 years old, but the legislation could push back the retirement age for new hybrid members if mortality studies show state residents are living considerably longer.
Benefits for current employees would not be directly affected — pensions are guaranteed by the Michigan Constitution — but members of the legacy pension system would lose the ability to purchase service credits used to determine eligibility for retirement.
Conservative and free-market groups celebrated Thursday’s action.
“The House and Senate’s reforms will protect Michigan public schools from crippling deficits and ensure teachers get the great benefits they deserve,” Michigan Freedom Fund President Terri Reid said in a statement.
Rep. Thomas Albert, R-Lowell, said he voted for the package even though it fell short of his ideal of completely closing the existing pension system to stop the accumulation of billions of dollars in debt. But he said the reformed hybrid system is built to last and will help teachers.
“I think what’s gonna happen, though, is teachers are going to realize that this is a really good (defined contribution) option, and I think most teachers are gonna select it.”