During the recent lame-duck session, Democratic lawmakers in Michigan attempted to pass several expansions to the state pension system. Bills introduced in both the state House and Senate sought to overhaul the pension systems for public school employees, state police, and certain state workers. These bills are currently progressing through the legislative process, awaiting approval in either the House or Senate.
Critics have raised concerns that these proposed changes could jeopardize the state’s financial stability. The Reason Foundation, a nonpartisan think tank, warned that House Bill 6061 could reverse years of progress in managing public pensions by reviving an underfunded legacy system and eliminating the current defined contribution retirement plan. They estimated that this transition could increase the state’s unfunded pension liabilities from $5.4 billion to over $8 billion in the next 15 years.
Supporters of the legislation argue that reverting to a more traditional pension plan could help attract more employees. State Rep. Matt Koleszar, a co-sponsor of House Bill 6061, believes that improving the retirement system for teachers could help address the state’s teacher shortage issue.
Another bill, House Bill 6060, focuses on public school employee pensions and has already passed the House. Meanwhile, House Bill 6061 is still under consideration in the House, with no Republican members voting on the bill due to objections over the rushed legislative process.
House Bill 6060 allows new and current public school employees to opt into a defined benefit plan, while House Bill 6061 would automatically enroll newly hired state employees into a defined benefit plan and allow current employees to switch to this plan. These changes would reverse a previous pension reform from 1997 and could potentially lead to increased costs for the state, according to legislative analyses.
The fate of House Bill 6061 remains uncertain as it awaits a vote in the House, with Republicans set to take control in the upcoming session. The Senate has also passed legislation proposing significant changes to the state employees’ and state police retirement systems, awaiting action in the House. An analysis of the Senate bills warned about the potential for future unfunded liabilities on top of Michigan’s existing $49 billion in pension liabilities.
Conditions failed to meet actuarial assumptions, leading to uncertainty about future liabilities, which have not been determined, presumed, or included in this analysis. The Pension Integrity Project forecasts that this extension could result in an extra $800 million to $1.85 billion in costs over the following three decades.
