As a reporting unit, you must manage several retirement plans for your staff. An employee's plan depends on their hire date. It also depends on choices they made in 2012. Your workers belong to one of these plans:
Some DC Plan members moved there from the Basic Plan or MIP. Their payment rates may differ from other staff. You must verify these rates in your reporting system.
Four sources may fund these retirement benefits. These include payments from the employer and the employee. Funds also come from service credit purchases and investment earnings. Every year, an expert called an actuary checks the health of the funds. This expert sets the contribution rates for the year.
Your reporting unit must identify the plan type for every worker. This ensures you send the correct amount of money to the Michigan Office of Retirement Services (ORS).
Retirement plan money is tax deferred. This means workers don't pay taxes on that money. They will be taxed when they take money out in retirement. You must track these payments using Detail 2 – Wage and Contribution (DTL2) and Detail 4 – DC Contribution (DTL4) records.
Contribution rates change every year on October 1. You should always check the current rates for your specific reporting unit. Universities use different rates than other school types.
Historical dates in the creation of the retirement plans.
Public school employees used to have many different retirement plans based on where they lived. These local and regional plans were separate from each other.
Public Act (PA) 136 of 1945 created the Michigan Public School Employees’ Retirement System. The legislators started a defined benefit plan called the Contributory Plan. This system pays a set amount of money to employees after they retire. It was part of the Public School Employees Retirement Act. The system had two parts. One part was for Detroit. The other part was for all other school districts. The Michigan public school employees’ retirement board is also part of this law.
The transition to the Basic Plan was a process that began with Public Act 259 of 1974. This law started the merger of the two separate retirement funds into one system. It also moved the system toward the noncontributory model where the employer pays the full cost. By 1977, the system was funded entirely by employers.
By 1977, the transition was complete. The system is now a noncontributory plan known as the Basic Plan. Under this plan, employers pay the full cost. Employees don't put in any of their own money.
The legislators passed the Public School Employees Retirement Act as Public Act 300 of 1980. This new law replaced the older law from 1945. It created the modern Michigan Office of Retirement Services (ORS) to manage the system. The law also combined the Detroit and out-state parts into one single system.
PA 91 of 1985 created the Member Investment Plan (MIP). The new plan officially started on Jan. 1, 1987. MIP is a contributory plan. This means that workers pay some of their own money into the retirement fund. The older Basic Plan didn't require workers to pay into the fund. Because workers contribute their own money, MIP usually pays higher benefits when a person stops working.
Workers who were already in the Basic Plan had a choice. They could stay in that plan or switch to the new MIP. Any new workers hired between Jan. 1, 1987, and Dec. 31, 1989, joined a specific version of the plan. This version is called MIP Fixed. They pay a flat 3.9% of their pay into the retirement fund.
PA 194 of 1989 closed the Basic Plan to new members on Jan. 1, 1990. All new workers were placed in MIP Graded. This version uses a tiered system for employee money. This means employees pay different rates based on their pay levels. Employees pay 3% on the first $5,000 of pay. They pay 3.6% on the next $10,000 of pay. Any pay over $15,000 has a 4.3% rate. For most workers, the total cost is between 3% and 4.3% of their pay. This is called MIP Graded.
The Michigan Legislature opened two special times for members to change their retirement plans. These are called windows. During these times, workers in the Basic Plan could choose to join the Member Investment Plan (MIP).
Both groups joined the MIP Fixed Plan. They pay a flat 3.9% of their pay into the retirement fund.
PA 110 and PA 111 of 2007 created MIP Plus. It started on July 1, 2008. This plan was for all new workers hired through June 30, 2010. MIP Plus is a contributory plan. Like MIP Graded, workers pay different rates based on their pay.
They pay:
This plan also moved retiree health care to a graded scale based on years of service (YOS).
PA 75 of 2010 created the Pension Plus Plan. This plan started on July 1, 2010 for all new employees this was the automatic choice until Jan. 31, 2018. It's a hybrid plan that combines a pension with a savings account.
For the pension part, workers pay different rates based on their pay. They pay:
This plan also changed how the system calculates final average compensation (FAC) to a 5-year average.
For the savings part, workers start by paying 2% of their gross wages. The employer matches 50% of that up to 1%. Workers can change their savings amount at any time.
This law also changed healthcare plans for retirees. Between July 1, 2010, and June 30, 2011, members paid a part of their wages into the retiree healthcare fund. Workers who earned $18,000 or more paid 3% of their pay. Workers who earned less than $18,000 paid 1.5% of their pay. This money pays for healthcare costs in retirement. This payment is called the Healthcare Contribution or HCC. These payments go to ORS as part of regular contributions. On July 1, 2011, the HCC became 3% for all members.
In 2018, the Michigan Supreme Court made a major ruling. They decided that the 3% HCC collected from July 1, 2010, to Sept. 3, 2012, was not legal. Because of this, ORS returned all of that money to the workers who paid it.
PA 300 of 2012 created a new retirement choice called the Defined Contribution (DC) Plan. This is a savings plan where workers manage their own accounts. The employer puts an amount equal to 4% of the worker’s gross wages into the account. The employer also matches 100% of what the worker contributes, up to 3% of their pay. Workers who choose this plan start with a 6% contribution rate.
The law also started the Personal Healthcare Fund (PHF). These programs began on Sept. 4, 2012. All new workers now receive the PHF. This fund replaces the old health subsidy, which was a different way to help pay for healthcare. Instead of that subsidy, workers pay 2% of their wages into a 457 account. The employer then matches that 2% and puts it into a 401(k) account. Those who started before this date could choose to keep their old benefit or switch to the PHF.
This law also changed how much the Michigan Public School Employees’ Retirement System pays for subsidized health insurance. For most people who retire in the future, the system will only pay up to 80% of the cost.
PA 92 of 2017 created the Pension Plus 2 Plan. This plan started on Feb. 1, 2018. It's a hybrid plan. This means it has both a pension and a savings account.
The Pension Plus 2 Plan has the same savings and Personal Healthcare Fund (PHF) rules as the Pension Plus Plan. Members make their retirement choice online through miAccount.
Unlike older plans, workers and employers split the pension cost 50/50. The rate can change each year. In 2018, both paid 6.2%. This plan isn't automatic. New workers have 75 days to choose the Pension Plus 2 Plan or the Defined Contribution (DC) Plan.
New laws also changed how much employers must pay for the DC Plan. This applies to all workers who first started on or after Sept. 4, 2012.
Beginning with the first pay period after Oct. 1, 2017, employers began making a mandatory 4% of the worker’s pay into the account automatically.
Beginning with the first pay period after Feb. 1, 2018, employers also match 100% of what the worker pays in, up to 3% of their pay.
From 2018 until 2024, the DC Plan was the automatic choice. If a new worker didn't pick a plan, the Michigan Office of Retirement Services (ORS) placed them in the DC Plan.
PA 250 of 2023 changed the default retirement plan for new workers. This change started on July 1, 2024. In the past, workers who didn't pick a plan joined the Defined Contribution (DC) Plan automatically. The DC Plan is a type of account where you and your employer save money for your future.
Now, the Pension Plus 2 Plan is the automatic choice for new workers. New workers still have 75 days to choose the DC Plan if they prefer it. If new workers don't make a choice within that time, they stay in the Pension Plus 2 Plan. This plan uses a 50/50 cost-sharing model. This means that the worker and employer each pay an equal half of the costs for the plan.
