Comprehensive retirement reform protecting teachers and taxpayers passes Senate

‘Smart, corrective action is needed now to modernize our retirement system and protect future generations from further debt.’

LANSING, Mich. — The Michigan Senate passed legislation on Thursday that would help ensure a secure retirement for the state’s current and future school employees while limiting future impact to Michigan taxpayers.

Senate Education Committee Chairman Phil Pavlov, the sponsor of Senate Bill 401, said his measure provides a sustainable and affordable solution that protects teacher retirements and doesn’t gouge taxpayers.

“This bill will provide future school employees with a competitive retirement plan that is flexible and portable to meet their long-term goals,” said Pavlov, R-St. Clair Township. “School employee pensions are protected by the Michigan Constitution, so retirees and current school employees with a defined benefit plan will see no change to their retirement under this plan.”

Under the current Michigan Public School Employees Retirement System (MPSERS), about half of new teachers leave before they are eligible to receive their full benefits. New employees who enroll in the defined contribution plan would be eligible to access all benefits after four years.

Under the reform, a public school employee would have their employer contribute 4 percent of the employee’s wages into a 401k plan. The employee could then contribute another 3 percent, which would be matched by the state — for a total of 10 percent each year.

The school pension system has an unfunded liability of nearly $30 billion — a growth in debt of more than 11,000 percent since 2000.

“State spending on K-12 education is at record levels, yet the required MPSERS debt payments continue to grow,” Pavlov said. “Smart, corrective action is needed now to modernize our retirement system and protect future generations from further debt.”

New employees who opt out of the defined contribution plan have the option to participate in a more stable hybrid pension option.

SB 401 now heads to the Michigan House.