Skip to comments.Two Cheers for Teacher Pension Reform Bill
Posted on 05/22/2012 1:41:08 PM PDT by MichCapCon
Mackinac Center analysts have been pretty tough on Senate Republicans who in recent days progressively watered down proposed school employee pension reform.
However, when the time came to stop talking and start voting, the Senate made a respectable down payment on desperately needed reforms. Referring to one major reform provision added late in the process, Senate Majority Leader Randy Richardville, R-Monroe, said to reporters, Tell the Mackinac Center that, OK?
Here are the major provisions of the bill that passed the Senate, 20 to 18 (Republican Senators Tom Casperson, Mike Green, Geoff Hansen, Rick Jones, Mike Nofs and Tori Rocca joined all 12 Democrats in voting no):
Starting in 2013, new school employees will no longer be enrolled in the current defined- benefit pension system, and will no longer be eligible for the (optional) post-retirement health benefits currently provided to retirees. This is a hugely important reform, putting Michigan on a clear path away from digging a deeper hole. Current and future school retirees who are still eligible for those post-employment health insurance benefits will have to contribute 20 percent toward their cost, vs. 10 percent under current law. Thats good, but celebrations may be muted given the fact that taxpayers have no obligation to provide any post-employment health benefits to school employees (who like the rest of us are all eligible for federal Medicare at age 65). Current school employees will have to contribute more toward their pensions, or else receive benefits calculated under a less generous formula. Thankfully, a late proposal from Gov. Rick Snyder to prefund those optional retiree health benefits was not adopted. This would have dinged taxpayers $500 million annually for an optional benefit that could be trimmed or eliminated at any time and should be.
Last year, providing this benefit to current retirees cost taxpayers $795 million.
Theres a lot of blather being reported about the transition costs of closing the system to new employees. Its all bunk. For one thing, the supposed costs have already been incurred theyre the amount of past pension underfunding the state must catch up on. Closing the system changes the rules for reporting these costs, but as the author of a recent Arnold Foundation study explained, the rules pertain only to financial reporting and not to legislative policy.
In other words, the state is not required to accelerate the rate at which it amortizes these liabilities. Even if legislators want to turn this financial reporting into policy, the state has options to address this underfunding.
Despite these reforms, however, Michigans long school pension nightmare is not yet over. Some 150,000 current school employees are already enrolled in the defined-benefit system. The bill did nothing to address the causes of persistent underfunding of contributions intended to cover their future benefits, which means unfunded liabilities may still continue to grow for some time.
But this bill passing the Senate is still a big deal. If the House doesnt sell out to the politically potent and distinctly unreformed state teacher unions, this will represent a significant contribution to a Michigan economic and fiscal turn-around thats showing signs of being the real deal.
Its a start but we can’t let up.
If anyone wants on the Michigan Cap Con Ping list, let me know.
Maybe I am missing something, but this is a much harder hit than what happened in Wisconsin. Yet, no storm trooping the capital and media mayhem. Are the Unions running out of money?
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