Amended SB 1040 moves to Senate floor

Today, the Senate Appropriations Committee discharged a substitute version of SB 1040 on a 10-5 vote, but the changes do little to help out current and future school employees or retirees. Contrary to  earlier reports from lawmakers and the media, many positive changes were left out of the bill.

Some important changes previously announced are still part of the SB 1040 substitute. The bill’s effective date would be July 31 instead of June 1, current employees won’t have to be 60 years old to receive retiree health care benefits and the graded premium subsidy program will not be retroactively applied to those hired before 2008.

But the remainder of SB 1040 remains largely the same--and will have a dramatic effect on employees hired before July 1, 2010. They would have to make choices regarding their retirement contributions that include:

  • Making a higher contribution (5 percent for Basic participants and 8 percent for MIP PLUS the 3 percent retirement health contribution) to continue receiving their 1.5 percent multiplier for future service.
  • Continuing their current contribution rate and have a 1.25 percent multiplier for future years of service.
  • Or moving to a defined contribution plan after freezing the pension benefits they’ve earned.

To limit future pension payouts, the definition of “compensation” will no longer include merit pay, tax sheltered annuities and longevity pay. Anything earned before July 1, 2012 will still be considered “compensation.”

Current and future retirees will be hit with a higher health care premium. The state would cover only 80 percent of the premium coverage--down from 90 percent. Retirees will have to pick up the remaining 20 percent of the cost. 

Changes for new employees--those hired after July 1, 2012--effectively discourage anyone from entering the profession. For them, there will be no retiree health care premium coverage. Instead, they’ll have a 401k account with a 2 percent matching employer contribution--similar to the plan for state employees. However, they will not have to pay the extra 3 percent for retiree health.

Most importantly, the changes to SB 1040 do nothing to deal with the structural problems in the retirement system. Instead of moving to prefund retirement (a concept that failed to make it into the substitute, despite discussion from many lawmakers), legislators are looking for a quick fix that shifts costs from school districts to current employees and retirees--middle class taxpayers who are already struggling financially.

The bill now moves to the Senate floor where quick action is expected--perhaps as soon as tomorrow. Contact your state senator today and let them know how SB 1040 will impact you. Use these talking points to urge him or her to vote NO on SB 1040!

SB 1040 Talking Points