June 13, 2017 —The details are the most critical thing when it comes to something as complicated as pensions – until we get to see and analyze bill language, it’s impossible to know for sure how much this plan will cost and whether it’s good public policy or not.
However, based on what’s been publicly reported, this seems to be little more than a shell game that goes about closing the hybrid pension plan in another way – something that is certain to cost Michigan taxpayers billions in transition costs, just as the original versions of SB 401 and HB 4647 would have.
The proposed “triggers” are the key flaw in this plan. First off, requiring that school employees and their employers pay additional costs to make up for even slight underfunding in the plan is unreasonable. All retirement savings are investments that fluctuate over time – requiring additional money to be put in if the Dow has a bad week ignores the fact that those losses can be made up by an equally good week a month from now. This is a risky proposition for both the retirement security and personal budgets of new hires – one that will make it harder to recruit new educators.
Worse yet, the trigger that closes the system if it is underfunded at 85 percent for more than two years simply allows future Legislatures and administrations to play games and force the fund to close. Playing with plan and investment assumptions and required state funding levels can be consciously used to drive underfunding and closure of the plan.
Protections can be put in place to keep those things from coming to pass however. If lawmakers don’t want taxpayers to be saddled with billions in extra costs from this law, they’ll be wise to protect the hybrid system from underfunding caused by future political games. As we look at bill language and engage in the committee process on this legislation, we will strongly advocate for those protections – or will have no choice but to remind lawmakers and taxpayers of the staggering costs of passing legislation that is designed to fail.
Contact: Doug Pratt, MEA Director of Public Affairs, 517-337-5508