Yesterday Michigan Governor Rick Snyder signed legislation– SB 401– that weakens the retirement security of the state’s public school employees. This newly-signed legislation continues a long running saga of attacks on the pension benefits of Michigan’s public employees. While SB 401 does not completely eliminate the defined benefit pensions of Michigan’s public school employees, it continues to push in that direction.
Before 2010, Michigan’s public school employees participated in a traditional defined benefit pension plan. Since July 1, 2010, all newly-hired public school employees have participated in a hybrid defined benefit-defined contribution system. In 2012, the state began to offer an optional defined contribution-only plan to these employees. Despite these changes, anti-pension ideologues pushed for even more changes to the retirement benefits of Michigan’s public school employees. Backed by money from the DeVos family, organizations like the Reason Foundation and the Mackinac Center went on the attack against public pensions in Michigan. Some wanted a complete conversion to a 401(k)-style, defined contribution system, as happened to Michigan’s state employees in 1997.
How have Michigan state employees fared under the defined contribution-only plan? Very poorly. Earlier this year, the Michigan Office of Retirement Services reported that the median account balance for state employees is only $37,000. For workers who are age 60 or above and have worked for the state for at least 15 years, it is actually worse: only $36,000. This is hardly enough to retire with dignity as it would barely cover a year’s worth of expenses in retirement.
So what exactly does the new legislation signed by Gov. Snyder do to the Michigan Public School Employees Retirement System? The legislation switches the default option for new public school employees from the hybrid plan to the 401(k)-style plan. It also closes the current hybrid plan and opens a new hybrid plan for public school employees. The new hybrid plan has the same pension calculations and benefits as the existing hybrid, along with the same 401(k)-style component. However, employees in the new hybrid plan could be forced to pay more for their pension benefits and are more exposed to risk if the financial markets take another dive. In fact, the state could close the hybrid plan altogether if investment returns are low, which would devastate the retirement security of workers in the plan.
SB 401 is an unnecessary attack on the retirement security of Michigan’s public school employees. It will harm the ability of future employees to retire with dignity. As Michigan’s twenty year experience of offering a 401(k)-style plan to state employees has shown, 401(k)-style plans do not provide adequate retirement security for working families. While it is good that Michigan legislators preserved the hybrid plan and the security of its pension component, they are forcing workers who choose that option to pay more for their benefit and risk seeing the plan close completely. Some Michigan legislators, who opposed this legislation, speculate that the goal is to undermine the hybrid plan and ultimately force all public school employees into the 401(k)-style plan.
Unfortunately, the attacks on public pensions in Michigan are not over. A commission organized by the governor is examining the pension plans offered by municipal governments and localities in the state. The same anti-pension ideologues who pushed for this unnecessary attack on public school employees are also pushing to eliminate traditional pensions at the local level. Working people in Michigan are gearing up for another fight and preparing to push back even harder against these attacks – and so are we. Will you join us in the fight?