MPSERS Reform Update—Bills Expected to Move Swiftly, Costs Expected to be High

Jennifer Smith

By Jennifer Smith, MASB Director of Government Relations

DashBoard, May 24, 2017

Yesterday, the House and Senate introduced identical bills aimed at closing the Michigan Public School Employees Retirement System’s hybrid plan and forcing all new hires into a 401K-style plan. Senate Bill 401 was introduced by Sen. Phil Pavlov (R-St. Clair Township) and referred to the Senate Committee on Education, which he chairs. House Bill 4647 was introduced by Rep. Thomas Albert (R-Lowell) and referred to the House Committee on Education Reform.

The new retirement plan would apply to all new school employees starting on Oct. 1, 2017. It would not change retirement plans for current employees. Under the 401K-style plan, the employer would contribute 4% of the employee’s salary, and if the employee opts to contribute an additional amount up to 3%, that must be matched as well. The funds to match the employee contribution shall be paid out of the School Aid Fund.

The current accrued liabilities would remain on track to be paid off by 2038, however, any additional liability would be stretched to 2057. We expect additional liabilities once the system is closed because there will be no new money going into the old system to support it. The current hybrid system is fully funded and combined with the current plan to pay off the liabilities of the old system, Michigan would have a retirement system free of unfunded liabilities by 2038. Stretching out payments on the liabilities would increase the overall cost of those liabilities.

This is one reason we oppose these bills. They are attempting to fix a problem that was already solved by creating the hybrid plan. A second reason is the cost that will be incurred by the state and local districts. Closing the MPSERS system completely could cost the state more than $2.5 billion over the next five years and funding to pay for that has not been identified. With the recent budget projections showing the state’s General Fund losing revenue and putting the additional costs of the new contribution plan in the School Aid Fund, these changes threaten any growth in funding for districts for years. It raises concerns on where the funds necessary for this program will continue to come from as additional stress is put on the state’s budget.

The Legislature is expected to attempt to move these bills quickly and send them to the Governor in just a few weeks. We urge you to contact your legislators and tell them this is unnecessary and expensive. It also destabilizes the MPSERS system and works against our efforts to attract new talent to Michigan and make us a Top 10 in 10 state.

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