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Dateline: Lansing Legislative Report

An update on legislation affection AFL-CIO unions and their families

Attack on Public Employee Pensions Coming in Lame Duck

Conservative business people and a right wing think tank are plotting to eliminate public employee defined benefit (DB) pensions in the lame duck session of the Michigan Legislature.

Currently, local government employees negotiate pension plans that range from defined benefit plans, where retirees get a fixed amount in a monthly check, or defined contribution (DC) plans, where employers put money in a worker’s 401k account. The down side of a 401k account is that it leaves a worker’s retirement security at the whim of the stock market. School employees are in a hybrid plan that combines elements of both systems.

Workers who retired in the midst of Wall Street’s crash in 2008 saw the value of their 401ks plummet, leaving them shortchanged in their retirement years.

The West Michigan Policy Forum, a gathering of conservative business people, recently identified cutbacks in public employee pensions as their number one public policy priority. Amway President Doug DeVos announced the group’s position, saying that it “sends a message to all our elected officials.” “We take these votes very seriously,” he said. The Mackinac Center, a conservative anti-labor group, has been pushing for a shift to defined contribution plans, just as they previously advocated for right to work laws.

So what’s prompting this attack on public employee pensions?

Proponents say the defined benefit plans are underfunded and that employees have to pay more into the system.

While it’s true that pension funds were hurt by the greed of Wall Street bankers in the economic downturn of 2008, the funds are working their way back to being fully funded, thanks to changes in the plans that have dramatically increased worker contributions.

Public Act 300 of 2012 placed all new school employees into a hybrid plan that blended aspects of DB and DC plans and eliminated their retirement health care benefits. The new hybrid system is fully funded. The State of Michigan put new hires into a DC plan back in 1997.

So what’s the real reason for the attack? Private sector employers don’t want to give DB pension benefits to their employees so they want to do away with DB plans in the public sector to discredit the idea. And private investment bankers stand to make a lot of money managing 401k plans under a DC system.

The fact of the matter is that DB plans are more efficient and give both management and labor more bang for their buck. A 2014 study by former state Treasurer Robert Kleine and former House Fiscal Agency Director Mitch Bean did a cost benefit comparison of DB and DC plans. The study looked at the potential impact of closing a DB plan and moving to a DC plan. It showed several interesting facts;

  • Investment returns are higher for DB plans…at least 1% annually. DC expenses are about .5% higher than with DB plans.
  • DC plans are more expensive to fund, according to the National Institute on Retirement Security (NIRS). The cost of funding a DB plan is 12.5% of payroll, while the cost of the same benefit under a DC plan is 22.2% of payroll.
  • DB plans have a significant positive impact on Michigan’s economy, supporting 71,894 jobs and $9.22 billion of economic output in the state, yielding over $519 million in state and local taxes, according to a 2012 NIRS study. The economic benefit of DC plans was about 20% less.
  • It is very expensive to transition from a DB plan to a DC plan. Depending on the rate of unfunded accrued liability, expenses will increase for 10-15 years under a DB to DC transition. Actual savings from the transition might not show up for 30 years.

Watch for introduction of pension legislation in the legislature after the November 8th election. Action could come quickly since the House of Representatives has only 11 session days scheduled after the election. The Senate has scheduled 14 session days.

Veteran Facilities Could be Privatized Under Legislative Package

A 4 bill package to create an authority to run the state’s veterans care programs has been introduced in the Michigan legislature.

Although designed to improve the quality of care for Michigan veterans, the package has a major flaw in that it gives the new authority the ability to privatize state veteran facilities.

Two recent Auditor General reports on the quality of management of state veteran facilities highlights the problems with privatized facilities. A February, 2016 audit showed that the currently privatized Grand Rapids Home for Veterans is riddled with problems of neglect and mismanagement.

The Auditor General found that management at the home routinely falsified records on staff response to fall alarms in resident rooms. Supervisory staff documented that 96-100% of fall alarms were properly checked out. However, surveillance videos showed that actual responses only took place 33% of the time. The private contractor did not meet required staffing levels 81% of the time and did not fill pharmaceutical prescriptions in a timely manner.

This is in marked contrast to the Auditor General report on the D.J. Jacobetti Home for Veterans in Marquette, a facility staffed primarily by state civil servants. The August, 2016 audit found no material conditions to report and gave the home an overall laudatory review.

SB 1097-1100 are currently in the Senate Veterans, Military Affairs and Homeland Security Committee. HB 5919-22 are currently in the House Military and Veteran Affairs Committee. Contact information for Senate committee members is available here and here for House Committee members.

Committee members should be encouraged to support amendments to the package that require the use of state classified civil service employees at veteran facilities, consistent with the Michigan Constitution and the rules of the Michigan Civil Service Commission.

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