House Committee approves SB 1040 sub; hears testimony

UPDATE:  House should heed testimony, take time with SB 1040

Last week, the Senate passed SB 1040 with changes, and this morning the House Appropriations Committee took up the legislation in an “emergency” Monday meeting. After making their own modifications to the bill, the Committee heard testimony from retirees and current and future school employees who described the devastating financial impact SB 1040 would have.

The Committee’s H-1 substitute kept much of the Senate’s version of SB 1040, but there were some significant changes. H-1 proposes pre-funding retiree health care benefits with a combination of employee contributions, employer contributions and state funding. The 3 percent employee contribution--$500 million currently held in escrow pending a decision by the Michigan Court of Appeals--would be used for prefunding. In return, employees would be guaranteed that their contribution would be used for their retirement health care. Prefunding was not a part of the Senate’s version of SB 1040.

In another change, H-1 would allow longevity and tax-sheltered annuities to be considered part of final average compensation. The Senate version was amended to allow merit pay to be included, but left in a ban on longevity and annuities.

Under H-1, current employees would still have to make choices regarding whether to pay increased future contributions to pension or get less in pension benefits, but the increased contribution rate would be 4 percent for basic members and 7 percent for MIP. The Senate version called for 5 percent for basic and 8 percent for MIP.

H-1 treats new employees differently than the Senate version did. SB 1040 eliminated pensions and retiree health insurance coverage for new hires, replacing them with defined contribution, 401(k) plans. H-1 would leave new hires in the current hybrid plan for new hires, but still eliminates retirement health coverage for them, replacing it with a 2 percent employer-matching contribution to a retirement health savings plan.

H-1 still gives no relief to retirees who would have to pay 20 percent of their health care premiums.
The only real “winners” in the H-1 version seem to be school districts that would see their contribution rate capped at 24.6 percent of payroll—which is the 2011-12 rate.

Passage of H-1 set the stage for testimony from retirees and current and future employees who characterized the legislation as “Promises made; promises broken.”

Barry Nobles, a retired teacher, challenged legislators, “You made a contract with me that asked if I would be willing to work for a moderate income and benefits as a teacher in return for retirement security. I honored my agreement. Will you?”

Other retirees explained SB 1040’s devastating financial impact. “I retired not expecting to be rich, but to be secure. Since I retired two years ago, my out-of-pocket expenses—because of the pension tax and higher prescription costs—have doubled. MIP was advertised as ‘Target your future.’ I didn’t expect I’d be the target.”

Gary Scott, president of Student MEA and a recent MSU graduate, emphasized that SB 1040 discourages the best and brightest from entering the profession. “Who would want to join the teaching profession when their future security has been stolen and robbed? We’re not entering the profession to be rich, but we don’t expect to survive on food stamps either.”

To make sure there was enough time for testimony, Committee members reserved their questions for a later time. The Committee plans on hearing more testimony this week, with the possibility of the bill being reported out this week also.

Since the bill is on a fast track, it’s critical that you continue the message Committee members heard in testimony today. Contact Representatives and let them know that shifting costs from school districts to school employees and retirees does nothing to fix the problems in the retirement system. SB 1040 will hurt students, parents and public education in general. Use these talking points and tell them to vote “NO.”