Unions Fear State Lawmakers Will Close Public Pensions

November 26, 2016

Detroit Free Press — Lawmakers may take action during the lame-duck session to force school workers and other public employees out of defined benefit pensions into 401(k)-style plans, though Republican leaders say no plans are finalized about what bills will move.

Action on bills already introduced to force new school employees into 401(k)'s is one possibility. But some public employee unions are worried the Republican-controlled Legislature could go further than that before year's end, possibly closing some public pension systems at the state and local level, and curbing health care benefits for local government retirees.

Unfunded liabilities in public pension plans in Michigan remains a huge issue, despite efforts at the state level in recent years to address shortfalls in pension plans set up for state employees and school employees.

Michigan municipalities owe $9.5 billion in unfunded pension and post-retirement health care costs, according to a 2016 report by a team of MSU local government finance experts led by Eric Scorsone, who in September joined the State of Michigan as senior deputy state treasurer for finance. For many cities, trying to keep up with these commitments are cutting deeper each year into money that once paid for municipal services such as police and fire protection.

Bills to address local government pensions have not been introduced, but conservative groups such as Americans for Prosperity and the Michigan Freedom Fund have been pushing for action. Legislation could be introduced — and possibly passed — during the post-election lame-duck session that resumes Tuesday.

"The first rule to get out of a hole is to stop digging," said Tony Daunt, executive director of the Michigan Freedom Fund, as a rationale for ending further unfunded obligations for defined-benefit pension and retirement health care plans.


Complicating the issue is that unlike pension plans for state and school employees, local pension plans are diverse: Some are underfunded, but others are adequately funded or even overfunded; Some offer retirement health care, others do not.

Gov. Rick Snyder has had a work group studying the issue of unfunded liabilities in local government. But the group, headed by director of strategy John Walsh, has not met since March, Snyder spokeswoman Anna Heaton said.

Snyder told reporters Tuesday it's up to lawmakers whether they want to tackle the issue during the lame-duck session.

"We're not putting forward big proposals at this point in time," Snyder said. "We're really waiting to see how the Legislature would like to handle it."

Snyder said "some communities are doing well, others are struggling with these liabilities," and "there could be better standards and better practices, potentially" to assure the benefits local government workers are promised get paid.

Nick Ciaramitaro, legislative director for American Federation of State, County and Municipal Employees Council 25 and president of the Michigan Coalition for Secure Retirement, said one option that has been discussed is forcing retirees younger than 65 into health care exchanges under the Affordable Care Act. But that option is in doubt with President-elect Donald Trump and the Republican Congress pledging to make repealing Obamacare a first priority, and no clarity about what they will replace it with, he said.

Given the variations in municipal retirement plans, a state-mandated "one-size-fits-all" solution "doesn't seem to make sense," he said.

At the state level, Senate Bill 102, sponsored by Sen. Phil Pavlov, R-St. Clair Township, and House Bill 5218, sponsored by Rep. Tim Kelly, R-Saginaw Township, would force new school employees into 401(k) retirement plans. Under changes that became state law in 2012, school employees are now in a hybrid plan that combines a smaller defined-benefit pension plan with a 401(k)-style defined contribution plan.

Ciaramitaro said it's a mistake to stop new workers from entering the plan to help support school retirees, and doing so will require the state to make significant annual contributions to shore up the plan to comply with Government Accounting Standards Board requirements.

Starting in 1997, all new state employees were forced into 401(k) plans, and studies have shown the state is now paying a similar amount to obtain much smaller benefits for its retirees, he said.

Snyder said Tuesday he doesn't want to prejudge what the Legislature might do, but "the hybrid system has been working and I don't have any intention to really talk about changing that at this point."

The State Board of Education recently came out against the legislation, saying "we fear that this move will lead to higher liabilities in the current pension system and cost the state taxpayers billions of additional dollars."

Gideon D'Assandro, a spokesman for House Speaker Kevin Cotter, R-Mt. Pleasant, said Tuesday "there are a lot of ideas out there, and we're going to take a look at them," both at the state and the local level.

Pete Lund, a former Republican state lawmaker who is state director for Americans for Prosperity of Michigan, an organization with ties to the Koch brothers and the tea party movement, released a poll Tuesday suggesting support beyond 60% for moving new teachers and local government workers into 401(k) plans.

"While pensions have long been touted as the hallmark of a secure retirement, public opinion has correctly moved toward individual retirement investment accounts as a better option," Lund said in a news release.