Senate Appropriations Committee Chair Roger Kahn (R-Saginaw) introduced legislation Thursday to overhaul the Michigan Public School Employees Retirement System (MPSERS). Senate Bill 1040 seeks to address the estimated $45 billion unfunded liability in the system by increasing employee contribution levels.
The work group that developed the legislation includes co-sponsors Senators Mark Jansen (R-Gaines Township), Phil Pavlov (R-St. Clair Shores), and Howard Walker (R-Traverse City). The Senate Appropriations Committee is expected to begin hearings on the legislation as early as next week.
MPSERS is structured with three tiers of retirement plans. The first, covering the majority of employees, is the Member Investment Program (MIP). The legislation proposes to increase the contribution from MIP participants from 3.9% to 8%. The second, the basic system, covers employees hired prior to 1990 and currently requires no contribution from participants. The legislation proposes to require participants to contribute 5%. The final tier, just two years old and implemented for new hires, would see very little change under the proposal.
The legislation also provides options for employees. Those wishing not to contribute the additional amount can chose not to do so; however, they will see a decrease in their pension multiplier from 1.5 to 1.25 percent of average compensation. Additionally, program participants could chose to freeze their pension at current levels, switch to a 401(k) plan and see no required contribution.
The legislation also makes significant changes to healthcare provided to participants. New hires, for example, would no longer receive state-provided health care insurance. Instead, the state would provide an amount equal to 2 percent of the employee’s salary into a 401(k)-style account for use upon retirement.
Current retirees would also see changes – potentially being required to contribute 20 percent of healthcare insurance premiums instead of 10 percent, and having to wait until age 60 to receive benefits.