LANSING, Mich. (AP) — A plan requiring school employees to pay more toward their pensions but not force new teachers into a 401(k)-style system was approved by a Michigan House committee Thursday, meaning the full chamber will consider a pension fix much different than the Senate's plan.
The bill passed by the House Appropriations Committee affects those in the Michigan Public School Employees Retirement System. The proposal would keep new teachers in a pension system that's part defined-benefit and part defined-contribution, and offers them the option of a straight 401(k)-style plan.
The Senate-approved plan would switch all new hires into the 401(k)-style plan.
The House measure also adds a $130 million state-funded down payment on school employees' costs in retirement. That funding, along with 3 percent contributions school employees are required to make, would significantly decrease the retirement system's $45 billion unfunded liability.
The House version also takes steps to make the changes less onerous on current and retiredteachers. Although most school employees would continue to pay at least 3 percent of their salary toward retiree health care, they would pay less to keep their current pensions than under the Senate version.
Under the House plan, experienced teachers now paying nothing toward their pension costs would have to contribute 4 percent of their salaries, while those paying between 3 percent and 6.4 percent would pay 7 percent. The Senate version requires contributions that are a percentage point higher for each group.
Other differences include capping the rate employers have to pay into the system and spreading the unfunded liability to school districts' total operating costs rather than just total payroll.
The House committee rejected several Democratic amendments, including those that would eliminate the defined contribution option for new employees and compel all public school employees to be participating in the system, including those who work for private contractors.
However, both the House and Senate versions would require retirees to pay at least double what they're paying now for health care premiums starting in January. Another amendment unsuccessfully offered Thursday aimed to decrease the amount retirees would have to pay for their health care premiums from 20 percent to 10 percent.
"Now we're asking people who are retired to pay $1,000 or more," said Rep. Steven Lindberg, the Marquette Democrat who introduced the amendment. "We made a promise: They were going to have insurance. My concern ... is the most vulnerable of our citizens out there."
Under both plans, new hires wouldn't be eligible for retiree health care coverage but would get a match of up to 2 percent plus a lump sum upon retirement so they could pay for their own health insurance in retirement.
Retired and current teachers spoke out against the revised bill this week, saying the changes are eroding promises that they would get pensions and health care coverage in retirement. Many teachers already saw their pension contributions increased in 2007, and now will have to pay state income taxes on their pensions under legislation passed last year.
The Coalition for Secure Retirement-Michigan has said a lawsuit challenging the pension changes is likely if Republican legislators pass the bill by June 1 as intended.
Appropriations Committee Chairman Chuck Moss, a Birmingham Republican, said the whole point of the legislation is to save the retirement system, adding that legacy costs are "eating up the organization." He said the prefunding directly pays down the unfunded liability by $16 billion and "gives districts relief."
"It's like paying a mortgage," he said. "We've got to pay it down now."
Moss acknowledged the wide gulf that must be bridged between the House and Senate plans. The House version includes many suggestions from Gov. Rick Snyder's administration, including the $130 million toward school employees' future retirement health care costs.
There's at least some common ground going in, though. The health care piece was included in a budget agreement worked out Wednesday by Snyder and Republican legislative leaders that they hope to approve by June 1.
"It'll work out," Moss said. "I'm hoping (the Senate) will like our plan."