Governor Applauds Introduction of Employee Retirement Legislation

March 11, 2010

State employee, school employee retirement bills part of governor's 29 government reforms

LANSING - Governor Jennifer M. Granholm today applauded the introduction of legislation that will save hundreds of millions of dollars by reforming the state employee and public school employee retirement systems and, in the process, encourage approximately 47,000 eligible public employees to retire this year.  The changes are part of 29 government reforms outlined by the governor in January to transform Michigan government.

The state employee retirement reforms are expected to save the state an estimated $265 million in the 2011 fiscal year that begins October 1 and $1.97 billion over the next 10 years.

"The reforms in this legislation will save state government and Michigan school districts hundreds of millions of dollars," Granholm said.  "I urge quick passage of these bills so we can realize the savings that are needed in the fiscal year that begins October 1."

Granholm said final legislative action is needed on the bills by April 1 to accommodate the application window outlined in the bills.

Separate bills were introduced today in the Michigan Senate and the Michigan House of Representatives.  The state employee retirement reform bills are Senate Bill 1226, introduced by State Senator Mark Jansen, R-Grand Rapids, and House Bill 5954, introduced by State Rep. Chuck Moss, R-Birmingham.  The public school employee retirement reform bills are Senate Bill 1227, introduced by State Senator Jud Gilbert, R-Algonac, and House Bill 5953, introduced by State Rep. Bill Rogers, R-Brighton. 

About 7,900 state employees are eligible to retire.  It's anticipated that approximately two new state employees will be hired for every three retiring state employees, creating new job opportunities for Michigan college graduates.

Approximately 39,000 teachers and other school employees also are eligible to retire.  It's estimated that those who actually do retire, together with other reforms in the bill, will create a total first-year savings of $701 million for Michigan school districts, and open up thousands of new jobs for young teachers.

The state employee retirement reform bills make the following changes to the State Employees Retirement System for state employees who are members of the defined benefit plan:

• A 3 percent employee contribution will be reinstated.
• The earned service credit is capped at 30 years.  Employees continuing in state service beyond 30 years will be transferred to a defined contribution plan for any additional years of service, excluding what is purchased by the employee.
• State-subsidized retiree vision and dental coverage is eliminated for state employees retiring with an effective date after October 1, 2010.  Retirees will be able to purchase vision and dental coverage at their own cost through the state plan.
• For employees age 60 and above, a phased retirement option is established.  At the employer's discretion, an employee could a draw a pension and continue to work, but the number of hours worked would have to be reduced by at least 50 percent.
• A retirement incentive is provided through an increase in the multiplier from 1.5 to 1.6 percent for eligible employees who retire with an effective date between July 1 and October 1, 2010.
• The application window for eligible state employees wishing to retire before October 1, 2010 is April 15 to May 15, 2010.

The public school employee retirement reform bills make the following changes to the Michigan Public School Employees Retirement System (MPSERS) for public school employees who are members of MPSERS:

• A 3 percent employee contribution will be reinstated effective July 1, 2010.
• Subsidized retiree vision and dental coverage is eliminated for school employees retiring with an effective date on or after October 1, 2010.  Retirees will be able to purchase vision and dental coverage at their own cost through the plan.
• The earned service credit is capped at 30 years.  Employees continuing in public school employment beyond 30 years will be transferred to a defined contribution plan for any additional years of service, excluding what is purchased by the employee.
• For employees age 60 and above, a phased retirement option is established.  At the employer's discretion, an employee could a draw a pension and continue to work, but the number of hours worked would have to be reduced by at least 50 percent.
• A retirement incentive is provided through an increase in the multiplier from 1.5 to 1.6 percent for employees who retire with an effective date between July 1 and September 1, 2010.
• A new, more cost-effective retirement plan for new employees hired on or after July 1, 2010 will be created.  New employees will participate in both a less expensive defined benefit plan and a defined contribution plan with an employer match.
• The application window for eligible school employees wishing to retire before September 1, 2010 is April 15 to May 15, 2010.    

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