Bill Would Close Michigan Teachers' Pension

May 17, 2012 ( - Legislation that would close the teachers’ pension plan to new public school employees and put them into a 401(k)-style retirement plan passed the Michigan Senate.

The bill would end the pension plan for teachers hired after January 1, 2013. Current employees would keep their pensions though certain compensation caps would be placed on them, the Associated Press reports. 

Under the measure, employees hired before 1990 would go from making no contribution to their pension to 5% of their salary. The majority of public school employees who contribute about 4% of their salary currently would now give 8%. Employees could opt out of the increases by taking a smaller multiplier — the factor by which a retiree determines his or her annual pension payout — or by switching to the 401(k)-style system, according to the AP.

The bill also would require all retired school employees who have health care coverage to pay 20% of their premiums, up from 10% now.

Proponents say the changes would reduce the growing unfunded liability of the pension system and ensure it is viable in the years ahead. Critics argue the changes could cost the state billions in the years ahead by taking people out of the pension plan. The state’s Office of Retirement Services estimates that the first three years of moving to a defined contribution plan for new public school employees would cost the state between $60 million and $80 million.

The Coalition for Secure-Retirement-Michigan says the state constitution requires Michigan to live up to its pension promises and a lawsuit is likely if the measure is enacted, according to the news report.