MPSERS Reform Bill Introduced

Bob Kefgen's picture

Senator Roger Kahn (R-Saginaw Twp.) has introduced Senate Bill 1040 legislation that would further overhaul the Michigan Public School Employees Retirement System (MPSERS). The bill is the product of a joint House and Senate workgroup that met privately over the past several weeks to develop the legislation. The Senate Fiscal Agency projects that these changes, if enacted, could reduce the MPSERS rate by 3.5 percent.

MASSP is actively tracking this legislation and will continue to update members as it progresses.

A summary of the legislation and its proposed changes on both pension and health care follows:

Pension Side:

  • Allows current school employees not in the hybrid plan to choose one of the following going forward:

    • An increased contribution rate to 5 percent or 8 percent (see below) to retain the current multiplier of 1.5 percent for future years of service in the calculation of a pension.

    • Same existing contributions, but a reduced multiplier for future years of service (used to calculate pension; from the current 1.5 percent of final average compensation (FAC) to 1.25 percent of FAC).
    • Freezing benefits under the defined benefit system and going to defined contribution, with a 4 percent employer contribution to a 401k. Employees would qualify for a 1.5 percent multiplier on all existing accrued benefits.
  • Those in the basic system (hired before 1990, who did not choose to go into MIP) would pay 5 percent of salary if they choose the increased contributions to retain the existing 1.5 percent multiplier.

  • Those who are in the MIP system (but not in the recently created hybrid system) would pay 8 percent of salary if they choose the increased contributions to retain existing 1.5 percent multiplier.

  • Hybrid employees (those hired after July 1, 2010) remain in the hybrid plan at current contribution levels.

  • Caps the salary amount that is used for calculating pension benefits for new employees at $100,000.

  • Prohibits some types of compensation from counting toward calculating pension amounts going forward. Those types are: tax-sheltered annuities, longevity pay and merit pay.

Health Care Side:

  • The system would pay no more than 80 percent of the retiree health care premium for those who have a premium subsidy (current retirees and current employees hired before July 1, 2012) this is in lieu of the current 90/10 system.

  • Requires most current employees to be at least 60 years old before they can receive retiree health care benefits. However, there would be a phase-in period for current employees; up until June 30, 2013, those who are not yet 60 could qualify if their age and years of service add up to 85 by that date.

  • Retroactively applies a graded premium retiree subsidy coverage for all employees. Under current law, only employees hired since July 1, 2008 are in graded retiree health care premium coverage. This means employees would qualify for 30 percent premium coverage after 10 years of service and would accrue an additional 3 percent per year up to 80 percent.

  • Eliminates retiree health care for all employees hired after July 1, 2012. Instead the bill creates a 401(k) account for new employees. Employees could contribute up to 2 percent of their salary to the account with up to a 2 percent match.

  • Maintains the 3 percent employee contribution for health care for current employees only. (As described above, new employees would instead pay the 2 percent into the health reimbursement account.)