Big changes coming to teacher retirement system in Michigan

Stateline Midwest ~ September 2012

Under a restructuring of the state’s retirement system for public school employees, Michigan teachers will be paying more for their benefits.

SB 1040 was signed into law in August. Proponents of the measure hailed it as a necessary cost-saving move, noting that the rate that school districts pay toward employee retirement benefits has doubled since 2002. Opponents said the measure takes away an earned benefit and will dissuade young people from entering the teaching profession.

According to the Detroit Free Press, SB 1040 will require school employees to either make larger pension contributions or receive reduced pensions. It also calls for a cost-benefit analysis of moving new hires into a 401(k)-style defined-contribution plan.

Michigan is changing the retiree health care system for teachers as well. Most current retirees will have to pay more (20 percent of their premiums rather than 10 percent), and retiree health care was eliminated for new hires. Instead, employees will have to save for the costs of health care through a 401(k)-style plan. Over the past decade, Indiana and Minnesota are among the other states that have set up tax-free accounts for public employees to save for post-retirement health care.