Teacher retirement plan passed by legislature

After weeks of negotiations the Michigan legislature finally passed a package of bills reforming the pension system for public school employees. One bill would encourage older public school teachers to retire by boosting their pension benefits, allowing the state to hire younger teachers at lower pay rates. A second bill passed at the same time requires public school employees to contribute 3 percent of their salaries toward their eventual retirement. The package also includes a new “hybrid” pension plan for new teacher hires, mixing defined-benefit and defined-contribution plans.

Taken together, these provisions are expected to save the state $3.15 billion over ten years, including approximately $680 million in the next fiscal year. That should cut the expected deficit for FY 2011 by about one-third. Gov. Granholm is expected to sign the bill into law.

Both the House and Senate had previously passed different versions of this package in late April and a conference committee then reconciled the two versions. Both chambers then had to vote on the final package. It passed the Senate by a 21-14 vote and the House by a 56-45 vote.

Reaction has been predictably mixed. Business Leaders for Michigan, a group of senior executives from businesses and universities in the state, praised the bill in a press release:

Business Leaders for Michigan commends the Governor, Legislative leadership and the House and Senate members who voted for Senate Bill 1227 for working together to to bring meaningful reform and significant savings to the state…

This is an example of what can happen if both sides work together on holistic reform. We now urge the legislature to continue this momentum and act on SB 1226, pertaining to state employee retirement, and other structural reforms currently pending before both houses of the legislature.

The Michigan Education Association, the largest teachers union in the state, had a different reaction. Their press release said:

“The retirement legislation passed this morning by Michigan Senate and House lawmakers is an ill-conceived plan that will not deliver savings to cash-strapped school districts. The meager ‘incentive’ included in the bill will fail to entice anyone not already planning to retire to do so. In fact, it will cost school districts far more money than any estimated savings because the numbers of potential retirees who might take advantage is grossly exaggerated.

“The legislation also fails to include charter school employees and private contractors in the pension plan, a move that would have stabilized the retirement system by increasing the number of participating employees.

“Finally, dozens of legislators violated their ‘no tax’ pledge by enacting a 3 percent tax on current employees to pay for this, effectively forcing them to take an additional pay cut at a time when they have already accepted concessions that have saved the state over a billion dollars in the past three years.

The MEA predicts that the bill will result in “massive cuts…larger class sizes and the elimination of key programs that generate proven results.”