Pension, healthcare rollbacks for public workers die in lame duck

Union rally at the Michigan State Capitol

Police and fire unions rally at the Capitol on Tuesday (Bridge photo by Lindsay VanHulle) 

LANSING — Michigan teachers and city employees will keep their pension and retiree health care benefits unchanged — for now.

Despite a frenzied push last week by the GOP-led Legislature, leaders in the Senate and House said Tuesday that they won't vote this term on bills to move new teachers into 401(k)-style retirement plans and cap municipal employees' retirement health care benefits.

The decision to let the bills die in lame-duck session that ends next week leaves both issues to be resolved in the new legislative session that starts in January — welcome news to public employee unions, which considered the contentious plans an overreach by state government.

"I'm happy to see that they heard our voice," said Kevin Kazyak, a patrol sergeant for the Waterford Township Police Department, who joined police officers and firefighters from across the state at a rally Tuesday at the state Capitol.

"I don't think anybody disagrees that something needs to be done in the future, but this is a bigger issue. It's not something that can be handled in two weeks. And we're glad to see that the Legislature saw that and is willing to work with us."

Reforming public employee benefits has been a priority of conservative lawmakers and groups such as the West Michigan Policy Forum, which advocated for the issue at an event in September. Municipal leaders also have called for changes to the system because unfunded liabilities are putting stress on local budgets.

The Michigan Municipal League said in a statement that it asked the House to wait on changing retiree health care benefits for city workers until the new term, when it would have more time to work with newly elected representatives, Gov. Rick Snyder and other groups with a stake in the outcome.

Researchers have pegged the tab for unfunded municipal retiree health care obligations at $11 billion. Just 14 percent of local retiree health care plans were funded statewide in 2014; about 78 percent of local pensions are.

The House's local government committee voted 10-1 Tuesday to approve one bill in a 13-bill municipal retirement health care package introduced last week, which would increase required reporting of local government retirement benefits to the Michigan Department of Treasury. Rep. Sheldon Neeley, D-Flint, was the lone opposing vote.

The bill, House Bill 6075, also would require municipalities to publicly disclose their plans to pay unfunded pension and retiree health care obligations if either plan is less than 60 percent funded.

The remaining bills would have limited municipalities to paying 80 percent of annual retiree health care costs starting May 1, and 2 percent of an employee's base pay into a tax-deferred retirement health account for new employees hired after April 30. Overtime pay, sick or vacation leave, bonuses or other compensation "paid for the sole purpose of increasing final average compensation" would have been excluded from determining an employee's base pay.

The legislation would have applied only to municipalities whose retiree health care costs are less than 80 percent funded, or municipalities that fall below the 80 percent threshold for two straight years.

"This is an important reform that needs attention soon, and the bill sponsors and committee members who shined a light on this situation have taken an important first step," House Speaker Kevin Cotter said in a statement. "(Other post-employment benefits) debt did not get much attention before this bill package, but the effects of leaving it to grow unchecked will be felt statewide. If we do nothing, numerous cities, townships, villages and counties across the state will go bankrupt.

"Unfortunately, our work on this issue showed just how little information on municipal finances is available and how hard it is to get a proper grasp of the details of the problem. Our members need more and better information to do this right."

Additionally, a spokeswoman for Senate Majority Leader Arlan Meekhof confirmed there are no plans to vote this year on bills to move newly hired teachers into a defined-contribution, 401(k)-style retirement plan. They cleared a Senate committee last week by one vote.

Testimony in committee indicated there could be billions of dollars in extra costs to make the switch out of a hybrid defined-benefit, defined-contribution plan that new teachers are offered now. The pension component of the hybrid plan is fully funded, the state said.

The proposals have drawn considerable fire from public employee unions, including police officers and firefighters, who liken this year's push to the right-to-work battle in 2012. Those bills eliminated the ability of unions to collect dues as a condition of employment.

Rep. Lee Chatfield, R-Levering, and chairman of the House's local government committee, said in a statement that the remaining bills needed more work than could be done in lame-duck session.

Transparency measures, if approved, would create the framework for future action, he said.

"I applaud (Cotter) for beginning a difficult conversation, because ensuring our police and fire are taken care of with sound financial planning is extremely important," Chatfield said. "The committee is dedicated to finding a solution, but I didn't feel there was the proper time or information available to move forward."

About The Author

Lindsay VanHulle

Lindsay VanHulle covers business and Lansing for both Bridge and Crain's Detroit Business. She can be reached here. 

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John Q. Public
Tue, 12/06/2016 - 11:45pm
Public-sector DB pension plans could survive, even thrive, with some reasonable limitations. First is to design them with a philosophy that they are to keep recipients from being destitute, not to aid them in getting rich. Some things to consider (note not all will necessaily work together): 1. A limit on multipliers. The State of Michigan's is 1.5. Make that the statutory limit for local governments. Tell universities that keep a higher one that it will affect their appropriations. We have counties, cities and townships out there with mutipliers of 2.5, and some outliers with even higher ones. You want a pension of 100% of your salary? Fine--work for 66 years. 2. A limit on the number of years one can get a pension benefit to years of service times 1.2. You work only 20 years, you get only 24 years of benefits. Retiring at 45 doesn't get you a life annuity. You want a 40-year pension? You have to work for 33. If you want to retire early, that comes with a risk that you will outlive your benefits--the same risk DC members have. 3. No public pension benefit can be received before age 60. If you want to leave your physically demanding fire or police job, you need to earn a living some other way until you're 60. 4. Get all local government workers into FICA to help offset the implementaion of item 1. 5. Make the final average compensation pension base the mean wages one earned after throwing out the highest and lowest three years of earnings, instead of the highest three or four earnings years. No packing those last few years with sham promotions, OT, leave-time buy-backs and all the other tricks used by workers to unreasonably pad their benefits. 6. Dollar-for-dollar reductions in benefits if you have earned income above some percentage (say maybe 50%) of your benefit. These benefits aren't meant to help you get rich, but to keep you from being poor. I can already hear the complaints from the public-sector employees. Heck, I wouldn't want to be subject to some of the ideas myself. Tht's why I opted for a DC over a DB when I was given the opportunity. Why would anyone want to leave their retirement income in the hands of the political class? Also. my representatives will be hearing from me about equality. Police and fire union members shouldn't be treated as some sort of class of betters among public-sector employees.
Matt
Wed, 12/07/2016 - 8:21am
John, your proposals are basically good but here are some more fundamental issues. First why should the state tax payers be placed in any position of guaranteeing any government sub-unit's pension agreement with their employees? This has let the unions off the hook of policing their pensions and just push other issues knowing that the state stood as backstop. This should be between the city and its workers period. Second the idea of any government (or anyone else) accurately predicting long term factors such as interest rates, rates of return, inflation and longevity is a big stretch, then mix in all the political crap that always comes in and you can see why pensions have a pretty sketchy track record and periods of success are short and few. So why go there?
Kevin Grand
Sat, 12/10/2016 - 9:05am
All in all, this is a very good place to start. But there are two areas in which I would disagree. First, like Matt had alluded to, if the local municipalities are essentially given a fiscal "get-out-of-jail-free" card from Lansing, there is no incentive on local governments (or their unions) to keep a keen eye on the status of the plans. We've already seen what happens with local municipalities like Detroit who have taken a devil may care attitude with their finances and spent themselves into bankruptcy with Michigan Taxpayers being made to pay for their ineptitude. That should never happen again. Second, given the nature of their job (and the main reason we have local governments in the first place) public safety should be on separate tier than other municipal employees. There is something to be said about compensating individuals in relation to the nature of their position and the risks associated with it. The same obviously cannot be said of those working in parks & recreation or accounts receivable.
Scott Brodie
Sun, 12/11/2016 - 10:13am
John Q. Public, interesting thoughts. I am a retired firefighter, and I'd like to weigh in. Half of our retirees have developed some form of cancer, some treatable,some not. The rate of cancer in firefighters is much above the national average. Our life expectancy is 65 years, about 8 years less than the average American male. So, if you are lucky, you will only be paying a shorter time for me and my colleagues. I retired before age 60. I have back issues from carrying patients up and down flights of stairs, I still have burn scars on my shoulders from a flashover, what are those worth? If you think that your taxes are too high, due to our Cadillac packages, you are certainly welcome to live in a community that has a volunteer department. One last point, When Tim "Tea Party" Walberg collects $60,000 a year in legislative pension for 16 years of service, as well as lifetime medical for he and his spouse, and has a 4% COLA, and other "retired" lawmakers(many who became lobbyists) are bring home over $100,000, I have little patience with those who want to cut or change the benefits I and my union agreed to over 25 years. By the way, I've used my real name, John Q., how about you?
Chuck Jordan
Sun, 12/11/2016 - 12:28pm
Thank-you Mr. Brodie for your work. You certainly deserve what you earned. Times have changed.
Scott Brodie
Sun, 12/11/2016 - 10:27am
Sorry, one last thought. If I knew you weren't going to honor your commitment to me, I should have negotiated much higher wages...
John Q. Public
Mon, 12/12/2016 - 12:49am
Good responses, all. As I said originally, the proposals were for consideration, not inended to be the "one right way". Also, they are how to help a DB plan survive financial scrutiny, not an endorsement of them. I think DC is the way to go, both to remove taxpayer responsibiity for financal risk of pension funds, and the risk of political chicanery (like the type we see now) from the retirement benefits of public employees. If municipal employee unions want to negotiate a DB retirement, that can be done absent a state guarantee, but it will likely take a constitutional amendment. That's a different discussion, though, and one in which Matt and Kevin would find me an ally. If a DB with characteristics designed to protect its solvency in perpetuity isn't sufficiently lucrative, one could always choose the DC. I'm certainly willing to cede that not every tenet I floated is appropriate in every aspect or every situation. Maybe police and firefighters should continue to qualify for an immediate pension after 25 years of service. And certainly, for better or worse, contracts already made should be adhered to. These are suggestions for the future. Walberg's--and other state or federal lawmakers'--pensions are a red herring in this discussion;they aren't municipal pensions, regardless of how egrigiously inappropriate one thinks they are. Probably some of the pensions out of Wayne County would be better rebuttals. Risk-adjusted compensation belongs in the wages and salaries discussion, not the pension. If you want that, you'll have to also consider the demands of the municipal solid-waste collectors, who have three times the on-the-job fatality rate of police officers, and four times that of fire fighters. But then, they don't have nearly the public sympathy as the other two, which is driven more by PR than data.