SAN JOSE, Calif., June 15, 2017 — The Retirement Security Initiative (RSI) today applauded the Michigan legislature for passing common sense pension reform that protects both Michigan’s teachers and taxpayers. The Senate approved the plan on a 21-17 vote and the House on a 55-52 vote. RSI is now urging Governor Rick Snyder to sign the reform into law.
Michigan's public school employee pension system is outdated and broken. Only 20 percent of all new teachers receive their full benefits, while 50 percent of new teachers receive no benefits at all. Out of touch with the demographics and characteristics of a modern workforce, the plan fails Michigan’s teachers by allowing them no leeway to carry their earned benefits with them from one position to the next.
“Under this reform legislation, future teachers will automatically be enrolled in a competitive, portable and modern defined contribution retirement plan with an option to participate in a hybrid model,” said RSI CEO Pete Constant. “This reform brings the Michigan teachers retirement plan into the 21st century, giving them control and freedom over their finances, thus placing teachers and school employees on a path to a secure retirement, regardless of tenure.”
Under the reform, Michigan will be able to keep its retirement promises made to current school employees and retirees, neither of which are affected by the legislation.
The reform legislation also protects current and future generations of taxpayers by employing a shared risk model and including a first-in-the-nation mechanism that will prevent the future accumulation of unlimited pension debt. Under the legislation, the hybrid system will automatically be forced to close should it begin to accumulate unfunded liabilities. With Michigan’s current unfunded pension liabilities at more than $29 billion, this is welcome news for taxpayers.
“Because of Michigan’s massive pension debt, 36 cents of every dollar that should go toward teachers’ pay instead goes to pay for pensions,” said Constant. “That’s unacceptable. Michigan’s teachers and taxpayers deserve better.”
RSI believes that state and local governments should fully fund employee benefits as they are earned, and incentives to underfund commitments should be eliminated. Further, unfunded liabilities, such as Michigan’s $29 billion pension debt, should be paid down over a reasonable time period. Michigan’s public school employee pension reform achieves these goals.
“Without substantial reform, Michigan will continue to pass more debt onto future generations and teachers will face financial insecurity in their retirement years,” said Constant. “For these reasons, RSI encourages Governor Snyder to sign this significant reform into law.”