MPSERS WITHDRAWAL S.B. 802: COMMITTEE SUMMARY
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Senate Bill 802 (as introduced 9-15-09)
Sponsor: Senator Wayne Kuipers
Committee: Education


Date Completed: 3-3-10

CONTENT The bill would amend the Public School Employees Retirement Act to exclude from the Michigan Public School Employees' Retirement System (MPSERS) a person who became employed by a tax-supported community or junior college that submitted a resolution to withdraw from MPSERS by December 1, 2009.
Under the Act, a public school employee is considered to be a member of MPSERS. "Public school employee" means an employee of a public local school district, intermediate school district, public school academy, tax-supported community or junior college, a university described in the Act, or a district library, with some exceptions.


Under the bill, "public school employee" would not include a person who first became employed by a qualified tax-supported community or junior college on or after January 1, 2010. "Qualified tax supported community or junior college" would mean a tax-supported community or junior college that had submitted an appropriate resolution to withdraw from the retirement system to the retirement board by December 1, 2009.


Service performed by a person who first became employed by a qualified tax-supported community or junior college on or after January 1, 2010, would be considered out-of-system public education service.


The bill also would remove from the definition of "reporting unit", beginning January 1, 2010, a qualified tax-supported community or junior college except to the extent that the college had employees on its payroll who were members of MPSERS.


MCL 38.1306 & 38.1307

BACKGROUND
The Michigan Public School Employees' Retirement System is a defined benefit plan open to employees of public schools, public school academies, district libraries, community colleges, and certain public universities. Since 1990, new members have been required to participate in the Member Investment Plan (MIP), under which a member must contribute a portion of his or her salary to the plan, based on his or her level of compensation. The member's employer, or reporting unit, also must contribute an amount to the plan based on the member's compensation. A member who accumulates sufficient years of service credit is eligible for a retirement allowance and retirement health care benefits.

Legislative Analyst: Curtis Walker
FISCAL IMPACT
To the extent that the State's 28 community colleges submitted resolutions to withdraw from the Michigan Public School Employees' Retirement System, the bill would have a fiscal impact on the State and local units of government. The retirement rate charged to MPSERS' reporting units consists of a pension rate (broken into a "normal cost" rate and a rate to recover unfunded liabilities) and a health benefits rate. According to the Office of Retirement Services (ORS), in the case of qualified community colleges, the normal cost rate as well as the unfunded actuarial accrued liability (UAAL) rate would be applied only to the portion of payroll of the employees who are members of MPSERS. Additionally, according to ORS, for the universities that have withdrawn from MPSERS, the State does not charge the health benefits rate charged to other member entities, and instead charges them the insurance premiums for their current retirees. The bill does not address modifications to the community colleges' contribution rates that could arise from the implementation of this legislation.


The normal cost rate is determined by the actuaries, and to the extent that the funds contributed to the system through this rate, employee contributions, and the return on investments do not meet pension liabilities, the system experiences UAAL. This liability is financed over a declining amortization period and, currently, 27 years remain to pay off this unfunded liability. Under the bill, other reporting units whose employees are members of MPSERS, such as community colleges that did not opt out, public school districts, intermediate school districts, participating public school academies, and participating local libraries, would experience UAAL contribution increases because the bill would not require the qualified community colleges to apply the UAAL rate to their total payroll; instead, they could apply the rate to the portion of payroll of their employees who are members of MPSERS. Thus, qualified community colleges would pay less than what they otherwise will pay for the system's unfunded actuarial accrued liability. As a result, the UAAL contribution rate would increase for remaining reporting units with MPSERS members.


For example, the UAAL rate for FY 2009-10 is 6.15% of payroll. That rate is based on an expected total payroll for fiscal year (FY) 2009-10. If payroll is $10 billion, then the retirement system can expect to receive $615 million in contributions toward UAAL. Under the bill, the total payroll on which the UAAL rate would be applied could decrease to the extent that community colleges withdrew from MPSERS. For example, if payroll of MPSERS members were to decrease by $100 million, the UAAL rate would not provide for the full $615 million. In order to get the full $615 million, the rate charged to all reporting units would have to be raised to 6.21%. Reporting units would have the rate of 6.21%, instead of the original 6.15%, charged on their total payroll, resulting in a negative fiscal impact on community colleges that did not withdraw from MPSERS, school districts, intermediate school districts, participating public school academies, and participating local libraries.


The fiscal impact on qualified community colleges with regard to the normal cost of pensions and retiree health benefit cost is indeterminate. Qualified community colleges would decrease their retirement-related expenditures if they enrolled employees in retirement plans or retiree health care plans with a normal cost rate less than their contributions to MPSERS. If qualified community colleges did not do so, they would incur increased costs. Table 1 outlines MPSERS' rate history.


The Office of Retirement Services would incur increased administrative costs associated with providing separate rate calculations to qualified tax-supported community and junior colleges.




Table 1
 MPSERS Employer Contribution Rates

Fiscal Year Pension Normal Cost Rate Pension UAAL Rate Health Benefits Rate Total Rate
1996-97 7.62% 3.60% 3.95% 15.17%
1997-98 7.14 0.00 3.98 11.12
1998-99 6.73 0.00 4.04 10.77
1999-2000 6.47 0.59 4.60 11.66
2000-01 6.42 0.19 5.55 12.16
2001-02 6.06 0.06 6.05 12.17
2002-03 6.26 0.68 6.05 12.99
2003-04 6.26 0.68 6.05 12.99
2004-05 6.31 2.01 6.55 14.87
2005-06 5.47 4.32 6.55 16.34
2006-07 5.49 5.70 6.55 17.74
2007-08 5.28 4.89 6.55 16.72
2008-09 5.17 4.56 6.81 16.54
2009-10 3.98 6.15 6.81 16.94
Source: Office of Retirement Services

Fiscal Analyst: Matthew Grabowski

Analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. sb802/0910