Gov. Rick Snyder said he plans to appeal a state Supreme Court decision that will put the 3 percent payroll cut from school employee salaries into an escrow fund. Snyder said he wants to apply the $508 million saved from the salary cuts to pension plans to help secure education worker’s retirement future.
On Tuesday, Snyder signed legislation that reforms pension plans for public school employees across the state. The bill is a proactive measure to secure $15 billion and avoid future “unfunded liabilities” facing the system.
“Resolving this tremendous debt and financial burden helps our schools, our children, the taxpayers of Michigan and ultimately our school employees by ensuring their retirement benefits are funded,” Snyder said in a statement. “I appreciate all the hard work by the Legislature to get this done.”
Supporters of the reform legislation say current system, if unchanged, would have collapsed before long, putting teachers at risk of having no retirement security. State rep. Chuck Moss (R-Birmingham) said the liability was $25.75 billion was expected to continue growing unless significant measures were taken. Michigan’s public school retirement system currently serves more than 440,000 members.
“We have effectively solved a tremendous problem facing our schools,” said state Sen. Roger Kahn, sponsor of Senate Bill 1040, which provides for the school retirement reforms. “Schools can now plan their budgets knowing that retirement costs are capped and in check for the future.”
The rate that schools pay in employee retirement costs has doubled since 2002, and was slated to grow to a staggering 35 percent of payroll costs by 2016 had no action been taken. The new law brings big (controversial) changes including: Increased employee contributions Prefunding retiree health care New school employees will get $2,000 in health reimbursement plus 2 percent in matching contributions into a 401(k) –This replaces fully subsidized retiree health care premiums. Existing members can opt out of retiree health care coverage for 401(k) credits.
“This is the most significant piece of legislation I’ve ever been associated with,” said State Budget Director John Nixon. “With what we’ve done to get the budget into structural balance for the long term, Michigan is in a very strong financial position.”