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.