Updates on State Retirement Bills HB 4701-4702

View Q&As concerning HB 4701

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A special toll-free number (1-877-851-2521) has been set up which members can call and will be patched through to your legislator’s office.

Update 6/20/2011 – House Fiscal Agency Analysis of HB 4701 and HB 4702

Update 6/13/2011 – SEIU Local 517M is Absolutely Opposed to this Legislation.

All members are encouraged to visit our website at www.seiu517m.org for the latest information regarding this legislation.  Basically, it changes the rules for state employees in the Defined Benefit Plan as well as the Defined Contribution Plan. If passed by the Michigan Legislature and signed by the Governor, it would discontinue the infamous 3% required contribution in to retirement “health savings” accounts.  The problem is that it increases the contribution to 4% for current members of the Defined Benefit Plan (DB Plan) who choose to remain in that plan—and for those who don’t, it “freezes” their pension benefit at the September, 2011 level.  Those state employees would then become members of the Defined Contribution Plan (DC Plan).

In addition, it also changes the rules for current and any new state employees in the Defined Contribution Plan. Employees, who have between 10 and 14 years of service with the state, will have the value of their service somehow “monetized” so that a cash payment can be made upon retirement from state service into a newly-established “Health Retirement Account” (HRA) from which they can pay for future health care costs.  HRAs have been around for awhile—primarily in the private sector—and used mostly by employers as a method for reducing their employee health care expenses.

State employees with less than ten years of service will be treated similarly, except the retirement age for receiving this one-time lump sum “monetized” payment changes to 60 years old.

Finally, state employees with less than four years of service really get hit the hardest—they basically get a one-time lump sum payment of $2000 at retirement into an HRA for medical expenses.

WHY IS SEIU SO OPPOSED TO THIS CONCEPT?

SEIU Local 517M believes that this very complicated legislation breaks the commitment that was made to state employment back in 1997 when the Michigan Legislature made “transformational changes” in our retirement systems by basically shutting down our DB plans for all new hires. Michigan was then one of only two states to discontinue DB plans for their state employees—and even today, is one of only three that have even experimented with this idea. At that time, a Defined Contribution Plan was established for state employees that promised to pay 4% into the plan with an additional 3% dollar for dollar match.  It also promised that health care plans would be vested after ten years, with state employees earning a premium split at the rate of 3% per year up to the maximum of 90% of the premium to be paid by the state (upon completion of 30 years of service).

State employees were told that this “transformational change” would save state taxpayers “tens or even hundreds of millions of dollars” within ten years of enactment.  All state employee unions fought this change back in 1997—but we lost to the Governor Engler-controlled Michigan Legislature.

Now, less than fourteen years later, the Michigan Legislature is proposing to once again, to dramatically shift the ground under state employees, and once again make state service a less attractive career option for the “brightest and the best” choosing public service.

SEIU Local 517M has some of the best talent in the retirement arena reviewing this legislation, and preparing testimony in opposition to these changes.  But more importantly than just SAYING NO to these changes, we are prepared to offer realistic alternatives that would make more sense for state employees—certainly be fairer-and still, save money.

OUR COMMON GOAL IS TO DEVELOP SOUND PLANS THAT PROVIDE RETIREMENT SECURITY FOR ALL OF OUR MEMBERS WHILE WORKING TO DEVELOP SMART, CREATIVE AND SOUND PLANS THAT WOULD PROVIDE RETIREMENT SECURITY FOR THE GENERAL WORKING PUBLIC AS WELL. IT CAN NOT BE A “WE VERSUS THEM” APPROACH.  WE WILL LOSE THIS BATTLE IF WE LOSE THE PUBLIC’S SUPPORT FOR THIS CONCEPT. WE ARE ALL IN THIS TOGETHER.

Phil Thompson, Executive Vice President

Update – 6/9/11 by Capitol Services

The House Appropriations Committee will be taking these bills up Wednesday, June 15th at 9, for testimony only.  In addition to the information in the preliminary summary below, two other points are worth mentioning:

1)       HB 4701 would exclude payment for overtime services rendered on or after October 1, 2011 and

2)      HB 4701 also allows state employees to return to work without adverse impact on their pensions, providing that the State Budget Director decides the retiree “possesses specialized expertise and experience” and that it is cost-effective.

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Update 6/9/11 – House Bill 4701 – OPEB Reform Legislation Introduced by Representative Bill Rogers

Summary Completed by the Office of State Representative Bill Rogers  View summary here

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Update 6/8/11 – Preliminary Overview of HB 4701-4702

By Ellen Hoekstra, Capitol Services, Inc.

HB 4701 (Rep. Bill Rogers, R-Brighton) was introduced on May 31 and referred to the House Appropriations Committee. The bill amends PA 240, the State Employees’ Retirement Act.  The legislation would affect state employees’ retirement benefits in the following ways:

  • Requires defined benefit plan members to “choose” to contribute 4% of their compensation to the employees’ savings fund to provide for the amount of retirement allowance calculated on service after September 30, 2011, as described in Sections 35A and 50A. A member who makes this choice may also designate that this amount is to be paid only until the member’s “attainment date”—when he or she reaches 30 years or service or retirement, whichever occurs first.  Years of service beyond 30 would be treated as tier 2, defined contribution years for members who made this designation. However, the designation is optional and members who choose to contribute 4% until retirement may have years of service beyond 30 used in the calculation of their defined benefit pensions.
  • Sets an election and designation time period from July 1- August 31, 2011.
  • Deferred members reemployed on or after July 1, 2011 and former nonvested members re-employed on or after that date will become qualified participants in Tier 2.
  • Deferred and former nonvested members re-employed as described above, as well as members who do not choose to contribute 4% of their compensation will no longer be eligible for non-duty disability.
  • Defined benefit plan members who do not elect to contribute 4% will have their pensions frozen at the current amount, with any future contributions going into “Tier 2”.  These members will also have a limitation of 240 hours of accrued annual leave and service credit purchased prior to September 30, 2011 (or under a payment plan commenced prior to that date).
  • Corrections and conservation officers may continue to qualify for the supplemental early retirement allowance  as currently spelled out in the act for “covered employment” only if they elect to make the 4% contribution mentioned above.
  • Employees who have less than four years of service and all newly hired employees would receive a lump sum one-time $2000 payment into their health savings accounts.
  • Employees who were hired after 1997 and are in the Tier 2, defined contribution plan but have more than four years of service will also be shifted into health savings accounts, with the contributions to those accounts actuarially determined. Other qualifications include their being at least 60 years of age with 10 years of service or 55 with 30 years. Furthermore, there cannot be a separation from service longer than 60 months.

The legislation would cease the existing 3% contributions –on or before October 1, 2011.  Contributions already made would be refunded to employees. The bill would replace the mandatory 3% contribution with the”voluntary” 4% contributions as of the first payday October 1, 2011.

The bill also appropriated $1.9 million to the Office of Retirement Services for administration of these changes.

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HB 4702 (Rep. Chuck Moss, R-Birmingham) was also introduced on May 31 and referred to the House Appropriations Committee.  This bill amends PA 77, the legislation that was enacted last session to set up trust funds for retiree health care for employees in the state-operated pension plans.  This bill is tie-barred to HB 4701 and sets up a system that would mandate contributions to such trust funds, as defined in the act governing each public pension system that would be paid out under the health reimbursement accounts set up by the legislation.

Although the only system immediately affected by this pair of bills is the State Employees Retirement Act, HB 4702 creates the structure to do the same thing for school employees, judges, state police, and legislators, should bills be introduced that would amend these acts. Reimbursable expenses include medical, dental, and vision to be paid for “past members or their funding account dependents under the applicable retirement act.”   “Health reimbursement account dependents” are defined in the bill as a past member’s legal spouse and any unmarried children considered dependent under section 142 of the Internal Revenue Code.

The bill also permits the establishment of separate prefunding accounts by the relevant trustees.  As permitted by law, voluntary contributions (and earnings on them) made by a member or past member who is deceased may be distributed to beneficiaries or the estate once eligible medical expenses are reimbursed.  In addition to whatever mandatory contributions are required, members may make voluntary contributions from 1-5%.  The vesting schedule for employer contributions is as follows:

  • 50% after two years of service
  • 75% after three years of service
  • 100% after 4 or more years of service.

Following termination of employment, a trust must reimburse medical expenses to past members until their accounts are exhausted.

We will update this story when further information becomes available.

One Response to “Updates on State Retirement Bills HB 4701-4702”

  1. Tom Jones says:

    Have hearings been scheduled in the House? If so, when are they? If not, do you any idea when they will be?