Reforms to Address State's Unfunded Post-retirement Liabilities Signed into Law, Put State in Stronger Position

Press Release

Date: Dec. 15, 2011
Location: Lansing, MI

Gov. Rick Snyder today signed House Bills 4701, sponsored by state Rep. Bill Rogers, and H.B. 4702, sponsored by state Rep. Chuck Moss, changing the way the state manages retiree health care and cutting the state's long-term unfunded liability by one-third (from $14.5 billion to $8.9 billion) while preserving options and benefits for state employees.

"I thank our partners in the Legislature for their leadership and for taking this bold and needed action to address our fiscal realities while building for the future," said Snyder. "This legislation gives us a more sustainable and affordable structure that's good for the state and its taxpayers, fair for state employees and integral to our shared future success."

The law gives workers in the defined contribution plan hired between March 31, 1997 and before Jan. 1, 2012, the choice of remaining in the plan for retiree health care or cashing in their existing years of service and moving the money to the state's 401(k) or 457 plan. For new hires, as well as those electing to switch to the new plan, the state will provide an extra 2 percent match to be deposited into the state's 401(k) plan as an incentive to save for their post-retirement health care needs. Employees hired after Jan. 1, 2012, will also receive a state deposit of $2,000 into a health reimbursement account upon retirement.

The legislation does not change the retiree health care plan or coverage available to defined benefit pension employees hired before March 31, 1997, which is when the state moved away from a pension plan in favor of a defined contribution plan. Employees who are still members of the pension plan, who currently do not pay for the benefit, will now be given the choice to pay 4 percent of their salary to maintain the benefit and remain in the pension plan. Those choosing not to pay the 4 percent would exit the defined benefit program for future service, have the level of their pension frozen at current levels, and switch to the defined contribution plan.

"Post-employment benefits have simply become unsustainable for the state, with 22 percent of the active work force payroll going toward retiree health care," said State Budget Director John Nixon. "This new approach allows the state to reduce and cap that liability, while giving employees a state match to fund their retiree health care once they reach retirement age."

The legislation also refunds the 3 percent contribution toward retiree health care that all state workers have been paying for more than a year, effectively eliminating the state's appeal to the Supreme Court on whether the withholding was legal. This withholding from state employee paychecks will stop immediately with the Dec. 22 payroll. Employees will be given the choice of how they want to receive their refund, either in their paycheck or as a deposit into their 401(k) or 457 account, and then receive the funds on Jan. 19.

H.B. 4701 is now Public Act 264 of 2011 and H.B. 4702 is Public Act 265 of 2011.


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