Michigan House Rejects Switch to DC Plan for Teachers

May 22, 2012 (PLANSPONSOR.com) – The Michigan house has approved pension reform for school system employees which does not include a switch to a 401(k)-style plan only.

Last week, the state Senate approved a measure that would close the defined benefit pension plan for employees hired after January 1, 2013, and put them in a defined contribution plan (see “Bill Would Close Michigan Teachers’ Pension”). The Senate Fiscal Agency estimated it would cost the state $1.4 billion over six years to make the switch.  

School system employees hired since July 2010 are in a hybrid pension/403(b) plan, according to news reports. The House bill would keep the current system in place.  

Experienced teachers now paying nothing toward their pension costs would have to contribute 4% of their salaries under the House legislation, while those paying between 3% and 6.4% would pay 7%, according to the Associated Press.  

Both versions would require retirees to pay 20% of their health care premiums starting in January, at least double what they’re paying now. New hires wouldn’t be eligible for retiree health care coverage. In lieu, they would be given a match of up to 2% plus a lump sum upon retirement so they could pay for their own health insurance.