Governor Rick Snyder of Michigan
September 4, 2012
Michigan's government has taken another significant step to becoming more fiscally sound. Yesterday, Governor Rick Snyder signed legislation reforming the Michigan Public School Retirement System (MPSERS), putting the system on sustainable path that resolves the giant retirement cost burdens facing Michigan schools.
"Resolving this tremendous debt and financial burden helps our schools, our children, the taxpayers of Michigan and ultimately our school employees by ensuring their retirement benefits are funded," Snyder said. "I appreciate all the hard work by the Legislature to get this done."
MPSERS provides the retirement services and benefits for 551 school districts, 70 public school academies, seven universities, 28 community colleges, 57 intermediate school districts and 11 libraries. The system serves more than 440,000 members.
"We have effectively solved a tremendous problem facing our schools," said state Sen. Roger Kahn, sponsor of Senate Bill 1040, which provides for the school retirement reforms. "We had to take action to provide relief from the massive liabilities that were draining resources from the classroom. Schools can now plan their budgets knowing that retirement costs are capped and in check for the future."
The rate that schools pay in employee retirement costs has doubled since 2002, and was slated to grow to a staggering 35 percent of payroll costs by 2016 had no action been taken. The new law makes several substantial changes, including increasing employee contributions as well as prefunding retiree health care beginning in FY 2012-13, whereby the state will now be setting aside money to meet the debt when it comes due in the future.
New school employees will now receive $2,000 deposited into a health reimbursement account once eligibility criteria are met, as well as receive up to 2 percent in matching contributions into a 401(k) account that can be used toward the purchase of retiree health care, or for any other purpose. This replaces fully subsidized retiree health care premiums. It also allows existing members to opt out of retiree health care coverage whereby those employees' 3 percent retiree health contributions made to date would be credited to their 401(k) account.
The financial relief to school districts is substantial, capping the employer contribution rate at current levels, requiring an appropriation from the School Aid Fund to pay for any excess liabilities above that amount.
"This is the most significant piece of legislation I've ever been associated with," added State Budget Director John Nixon. "The savings from these reforms coupled with the changes we made to the State Employees Retirement System means that we've saved more than $20 billion, and that's pretty mind-boggling. By capping these post-employee benefit liabilities and with what we've done to get the budget into structural balance for the long term, Michigan is in a very strong financial position."