Michigan 401(k) Plan Cuts Liability Costs

July 12, 2011 (PLANSPONSOR.com) - A new report by the Mackinac Center for Public Policy found that a 14-year-old reform that ended defined pension benefits for new employees has saved up to $4.3 billion in unfunded state employee pension liability.  

As of September 30, 2010, the state employee pension plan carried an unfunded liability of $4.1 billion. Since switching new hires to a 401(k)-style plan in 1997, the state’s unfunded pension liability has been cut roughly in half, saving between $2.3 billion and $4.3 billion.  

Rick Dreyfuss, an adjunct scholar at Mackinac Center, claimed that despite significant initial costs when switching to a 401(k) plan, the state has saved $167 million overall in its direct contributions to pensions and 401(k)s for state employees since the 1997 reform. 

“It was a good move for Governor Engler to implement this change,” says Dreyfuss. “It’s been beneficial to taxpayers.” 

The current administration under Governor Rick Snyder is seeking similar reductions in the unfunded liability in state employees’ retiree health care by cutting insurance for those hired after 1997, offering instead lump sum payments from $66,642 to $2,000. State officials hope to reduce the unfunded liability for state worker retiree health care from $14.7 billion to $9.1 billion. 


­-Sara Kelly