Mich. Governor Signs Bills Offering State Workers More Benefit Options
December 16, 2011 (PLANSPONSOR.com) – Michigan Governor Rick
Snyder signed two bills to change the way the state manages retiree healthcare.
In addition to changing retiree healthcare, the bills will
cut the state’s long-term unfunded liability by one-third (from $14.5 billion
to $8.9 billion).
The law
gives workers in the defined contribution plan hired between March 31, 1997 and
before Jan. 1, 2012, the choice of remaining in the plan for retiree healthcare
or cashing in their existing years of service and moving the money to the
state's 401(k) or 457 plan. For new hires, as well as those electing to switch
to the new plan, the state will provide an extra 2% match to be deposited into
the state's 401(k) plan as an incentive to save for their post-retirement
healthcare needs. Employees hired after Jan. 1, 2012, will also receive a state
deposit of $2,000 into a health reimbursement account upon retirement.
The
legislation does not change the retiree healthcare plan or coverage available
to defined benefit pension employees hired before March 31, 1997, which is when
the state moved away from a pension plan in favor of a defined contribution
plan. Employees who are still members of the pension plan, who currently do not
pay for the benefit, will now be given the choice to pay 4% of their salary to
maintain the benefit and remain in the pension plan. Those choosing not to pay
the 4% would exit the defined benefit program for future service, have the
level of their pension frozen at current levels, and switch to the defined
contribution plan.
"Post-employment
benefits have simply become unsustainable for the state, with 22% of the active
work force payroll going toward retiree healthcare," said State Budget
Director John Nixon. "This new approach allows the state to reduce and cap
that liability, while giving employees a state match to fund their retiree
health care once they reach retirement age."
The
legislation also refunds the 3% contribution toward retiree healthcare that all
state workers have been paying for more than a year, effectively eliminating
the state's appeal to the Supreme Court on whether the withholding was legal.
This withholding from state employee paychecks will stop immediately with the
December 22 payroll. Employees will be given the choice of how they want to
receive their refund, either in their paycheck or as a deposit into their
401(k) or 457 account, and then receive the funds on January 19, 2012.
Tara Cantore
editors@plansponsor.com