Compliance

Michigan Governor Signs Teacher Pension Plan Reform

The bill creates a new 401(k)-style defined contribution plan with an automatic employer contribution of 4% of the employee’s salary.

By Rebecca Moore editors@plansponsor.com | July 27, 2017

Michigan Governor Rick Snyder has signed a bill modernizing the Michigan Public School Employees Retirement System (MSPERS), increasing the state’s share to defined contribution plans, while reducing the unfunded liabilities of the overall system.

Senate Bill 401 will close the current MSPERS “hybrid” plan to new enrollees as of February 1, 2018, and create a new 401(k)-style defined contribution plan with an automatic employer contribution of 4% of the employee’s salary, and an additional voluntary matching contribution of 3% from the state School Aid Fund.

The new law will also:

  • Create a new optional revised hybrid plan that will include a 50/50 cost share between the employee and employer;
  • Require regular studies to calculate the mortality age in the system, and increase the regular retirement age by at least one year if the mortality rate shows an increase of one or more years; and
  • Create a trigger under which the hybrid plan would be closed if it is less than 85% funded for two consecutive years.

In a statement, financial experts at the Mackinac Center for Public Policy say Michigan’s reform plan is more significant than any pension reform achieved in other states. Senate Bill 401 restricts politicians and bureaucrats from adding new unfunded liabilities to the $29.1 billion already accrued by the plan.

“Michigan’s situation is not unique, but the legislation signed by Governor Snyder today goes farther than any other reforms to limit the ability to promise benefits now and push the costs onto future taxpayers,” said James Hohman, director of fiscal policy at the Mackinac Center, in the statement. “Some states have passed legislation that offers new employees a less generous retirement package, but this does little to stop generating new debt. Michigan’s move restrains the problem from getting worse, provides even more generous benefits to future hires and leaves the pensions of current teachers and retirees untouched.”

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