As quickly as the pension reform bill (Public Act 300, or PA 300) was signed by the Governor, legal challenges were filed against it. Not surprisingly, questions continue to arise. Here’s what we know, what we don’t know, and what you can do to prepare.
Key Elements at Issue
- PA 300 continues the 3 percent contribution by employees, but now those contributions "follow" the employee for use against the cost of their future retiree health insurance costs. The 3 percent contribution has been litigated for a number of years, and the State has filed its final appeal with the Michigan Supreme Court on this matter. While the appeal is underway, districts should continue to follow the same approach they have in the past until there’s a final decision.
- PA 300 also caps the employer contribution at 24.46 percent of covered payroll. However, the law indicates to the extent more funds are needed for the MPSERS system, any shortfall will come from the School Aid Fund. Those funds will need to come from somewhere, which may mean reduced per-pupil funding down the road.
- Currently, employees have until October 26 to decide which retirement and health care benefit is best for them. A restraining order has been put in place regarding this timing, but districts should continue to prepare and educate their employees in to meet the original timeline. If employees fail to make elections timely, decisions will be made on their behalf that may not be in their best interests. The Office of Retirement Services has indicated that decisions can be rescinded once the legal challenges are resolved.
- Retirees will be required to pay either 10 or 20 percent of their health insurance premium, depending upon their age on January 1, 2013.
- Contribution rates for employees will increase, depending upon the options they select and their date of hire. This will create more time to change elections in your payroll systems and make sure those changes are handled accurately as payroll is processed.
- PA 300 calls for an independent study to be performed by November 15, 2012 regarding:
- Funding options for the retirement system
- Changes to the system
- Plan design
- Many other factors
One interesting element is whether employer contributions should be based on current operating expenditures versus covered payroll. If this approach is implemented, it could change the required contributions for districts. A change like this may address some of the recent personnel changes districts have experienced with contracting services; however, caution is needed since it’s not yet known what the contribution rate might be relative to current operating expenditures.
We’ll keep you updated as these items evolve and decisions are made on these critical matters.