Move Teachers To 401(k) Plan: Republicans

LANSING, MI — New Michigan teachers could wind up with a 401(k)-style retirement plan if state Republicans make good on proposals circulating around Lansing that aim to trim $29 billion in growing unfunded liabilities. Current teachers fall into two groups: a traditional pension for employees hired prior to 2010 and a hybrid plan for those hired after.

Lawmakers believe a 401(k)-style retirement plan will save money and allow the state to get a handle on unfunded liabilities. A formal proposal has not yet come from Republicans as the legislature works through the coming fiscal year’s budget.

A similar proposal was shot down late last year. Democrats, educators, and Gov. Rick Snyder opposed the plan. The Snyder administration said the plan would not address unfunded liabilities and lead to $25 billion in new state costs over 30 years, the Detroit News reported.

“I’m hoping that we come up with a better option for them,” said Senate Majority Leader Arlan Meekhof, a West Olive Republican, the newspaper reported. He added that Republican leaders are “getting closer on the concepts” of a new proposal but are not yet ready to introduce bills. “I think what we’d look at is what is the most affordable, portable and modern retirement system that people would want to be a part of.”

The current hybrid plan includes both a defined pension component and contribution component similar to a 401(k) savings plan. The new system, which is fully funded, spreads risk between schools and individuals but provides some guaranteed level of retirement income, the News reported. The hybrid retirement plan is working as intended, Snyder said last year, urging lawmakers to give it more time before abandoning it.

Teacher retirement reforms enacted in 2012 targeted unfunded liabilities, the newspaper reported. The law required retirees to pay more for their health care and capped school district contributions for unfunded liabilities at 24.46 percent of payroll. The state covers additional costs, which totaled more than $980 million this year.

DeWitt Republican Tom Leonard recently said “fixing our broken teacher retirement system” was at the top of his to-do list. “That has been my absolute top priority since the day I was elected speaker of the House,” Leonard told the Detroit News. “So if that’s an avenue that we can go, if that’s something we can get accomplished, I’m ready for it.”

Photo by John Moore / Staff / Getty Images News / Getty Images