The Michigan Association of School Administrators (MASA) announced August 15 its approval of new legislation to significantly reform the Michigan Public School Retirement System (MPSERS). MASA members, who comprise public school superintendents and central office administrators, consider this week’s legislation an important victory—one that they and their boards have strongly encouraged as an imperative to reduce the strain that legacy costs are placing on school budgets.

“At long last, Michigan’s school leaders can move forward on educational initiatives without the negative budget impact of steeply rising retirement costs,” said MASA’s Executive Director William Mayes. “This MPSERS reform was not an easy step for legislators to take, but it was one that history will remember.”

Senate Bill 1040 (H-3) with proposed amendments will:

• Controls pension costs by increasing employee contributions, reducing multiplier or the option to convert to defined contribution
• Increases the retiree health insurance premium contribution of both existing and future retirees to 20%. Current retirees who are Medicare-eligible by January 1, 2013, would pay 10% of health care premiums instead of 20%
• Replaces future health care with an employer matching contribution of up to 2% of compensation into either a 401(k) or 457 plan
• Continues the 3% employee contribution for retiree health but guarantees an employee's individual contributions
• Shifts from paying for retiree health care benefits on a pay-as-you-go method to prefunding with a combination of employee contributions, employer contributions and state funding.
• Caps the employer contribution rate at 24.46%, or the equivalent, of payroll
• Reamortizes the cost of the early retirement program of 2010 (5 years to 10 years)
• Commissions a study on potentially converting to a defined contribution plan for retirement, as well as reviewing stranded costs and current operation expenses (COE)

The August 15, 2012, legislation, with proposed amendments, keeps the retirement rate down, provides schools with budget stability, and preserves benefits for current and future retirees. MASA applauds the legislature for their work on this important bill.