House Bills Would Change Retirement and Retiree Health Care -updated

As reported in the June 3rd edition of the KYI, the Michigan House of Representatives has officially introduced HB 4701 and HB 4702 legislation intended to overhaul the State Employee Retirement Act and the Public Employee Retirement Health Care Funding Act beginning October 1st 2011.

Rep. Bill ROGERS (R-Brighton) volunteered to sponsor HB 4701 on behalf of Governor Rick Snyder telling a Lansing news outlet that he is very aware that unions may not be happy about the legislation “but if we predicated all of our legislation on who is going to scream and yell at us then we would never be able to get anything done”.

According to information obtained from the House Fiscal Agency, HB 4701 (introduced by Rep. Bill Rogers) and HB 4702 (introduced by Rep. Chuck Moss) would make the following changes to SERS benefits beginning October 1st, 2011:  (Please note: Supplemental “Covered” Employee retirement ages/criteria are not altered by HB 4701 or HB 4702.  However, the Supplemental is an addition to the Defined Benefit plan for those who work in covered positions.  This means that the language below that pertains to Defined Benefit members applies to those in the Supplemental as well.)

  • Eliminate the 3% employee contribution for retiree health care required of all Employees since 2010 and refund contributions to employees.
  • Require employees in the Defined Benefit (DB) plan to choose between remaining in the plan and contributing 4% of their compensation (base pay not including OT) toward the plan or freezing their pension benefit and continuing their future service under the Defined Contribution (DC) 401(k) plan.  Employees may choose to leave immediately and freeze their current time, choose to stay in the DB plan and pay the 4% until they reach 30 years of service and then switch to the DC plan, OR they may choose to continue to pay the 4% and stay in the DB plan indefinitely where their service time towards their pension will continue to accrue.
  • Allow the State Budget Director to waive the requirement that retirees suspend their pension if they are directly or indirectly reemployed by the State.
  • Eliminate retiree health insurance for employees in the DC plan hired after March 31, 1997, (excluding former DC employees with more than 10 years of service, who have retired and are currently receiving the health insurance benefit or those who transfer from the DB plan to the DC plan either in 1997 when it opened or through these bills).
  • Provide DC plan employees (other than those excluded above) a lump sum contribution into a health reimbursement account upon retirement from the State in lieu of retiree health insurance. For employees with more than 4 years of service, the amount would be calculated as described below. For those with fewer than 4 years of service or new employees, the amount would be $2,000.
  • Establish health reimbursement accounts for employees within the irrevocable health care trusts established in 2010 to receive and hold employer and employee contributions for retiree health benefits or reimbursement of medical expenses.
  • After October 1, 2011, exclude overtime pay from the definition of compensation, thereby excluding overtime pay from an employee’s pension calculation and compensation for the purposes of calculating employee contributions into the pension plan.  OT earned prior to October 1, 2011, will still count.

What this all means for MCO (Defined Benefit Members)?

If you are an employee under the State’s Defined Benefit/ Pension plan you would keep the health insurance plan already promised to you, however, you would be required to begin “voluntarily” paying 4 percent of your salary to the pension fund starting October 1st, 2011.

If you choose not to pay the 4 percent, you would have your service and compensation, for the purposes of calculating your pension, frozen as of September 30th, 2011, and would be immediately transferred to the DC 401K plan for the rest of your career.

What this all means for MCO (Defined Contribution Members)?

If you are an employee that was hired after 1997 and are currently a participant in the Defined Contribution (401K) retirement system you would be switched over to a health savings account created by HB 4702 and subject to the following benefit package.

If you are a current employee with less than four years of service you would receive a lump sum payment into a health saving account of $2,000 which would not be accessible until age 65 with 10 yrs of service.

If you are a current employee with more than four years of service, you would also receive a lump sum payment into a health saving account, however, your payment would be based on an actuarial calculation that uses your 2011 service time and would not be accessible until age 55 with 30 yrs of service or until age 60 with 10 yrs of service.

IMPORTANT: These bills do not guarantee any type of health care for state employees hired after March 31, 1997. The new age and service requirements dictate that any current employee (4+ yrs.) must stay in state service until age 55 with 30yrs of service or age 60 with 10 yrs to be eligible for the lump sum payout. For those with less than 4 years of service or new hires the 65 with 10 years service requirement must be met.  If for any reason, that current or future employee leaves state employment before achieving these milestones and fails to reach the requirement within 60 months (5 yrs), that individual forfeits any and all funds the state would have owed him/her.

Full copies of the legislation and analysis can be found through the links to the bills above.  Rep. Rogers’ office conducted their own House Bill 4701 OPEB Legislation Summary.  As did the House Fiscal Agency.

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