The education committees of the Michigan Senate and House on Wednesday approved identical revised pension reform bills that would create a new defined contribution plan and a new hybrid pension plan for public school employees.
House Bill 4676 and Senate Bill 401 would affect participants and beneficiaries of the state's largest public pension system, the Michigan Public School Employees' Retirement System, with combined assets of $44.7 billion as of March 31. The breakdown of MPSERS' assets by defined benefit plan, defined contribution plan and hybrid pension plan could not be learned.
The bill's major impacts, according to legislative analysis by the state's House Fiscal Agency, include replacement of the current optional hybrid pension plan, established in 2010, with a similar plan for employees hired after Jan. 31, 2018.
The new plan uses the same benefit calculations but adds a 50/50 cost share between employer and employee, including unfunded liabilities, plan assumption changes and changes to the retirement eligibility age. Employees will not be required to share the cost of unfunded liabilities caused by an employer defaulting on a required contribution.
The assumed rate of return for the hybrid plan will be 6% annually.
The bill also establishes a trigger that would close the new hybrid plan to new employees if the actuarial funding ratio falls below 85% for two consecutive years.
The current defined contribution plan, set up in 2012, would be replaced by a new plan for employees hired after Jan. 31, 2018. The new plan is similar to the existing plan but will require a higher employer contribution, according to the HFA analysis.
The new defined contribution plan features an automatic employer contribution equal to 4% of an employee's compensation and a 100% matching contribution up to 3% of a participant's compensation. The bill requires that the state's School Aid Fund pay for the 3% employer-matching contribution.
The current defined contribution plan offers a 50% employer match up to 3% of an employee's compensation.
Public school employees hired on or after Feb. 1, 2018, may choose between the new hybrid pension plan and defined contribution plan.
“Legislative leaders and the governor reached an agreement about the education bills,” which were substantially revised from their original form after negotiations, said a spokesman for state Sen. Phil Pavlov, the Senate bill's sponsor.
The timing for bill approval by the full House and Senate has not been set.
Sources expect Michigan Gov. Rick Snyder to sign the legislation. The governor's communication staff did not respond to emails seeking reaction to the passage of the pension reform bills out of the House and Senate education committees.