State Employee Retirement Incentive Legislation

SB 1226

• Who it applies to-The Bill applies to classified civil service state employees, unclassified state employees, legislative and judicial employees who are eligible to retire under the current formula or whose age plus years of service equals 80 or if their total years of service equals 30.

• Enhanced Multiplier Cap- Currently a member's pension calculation equals their final average compensation (FAC) multiplied by their years of service multiplied by 1.5%. The bill caps the final average compensation to which the enhanced multiplier is applied to at $90,000.

• Employees Eligible to Retire Under the Current Formula-Currently State employees have to be 55 and have 30 years of service to be eligible to retire. The bill allows these employees eligible under the current formula to retire with a 1.6% multiplier for the first $90,000 of their final average compensation. Anything over $90,000 will remain subject to the current 1.5% multiplier.

• Employees Eligible to Retire Under an 80 and Out Formula or With 30 Years Service-The bill also allows employees to retire if their age plus years of service equal at least 80 or if their total years of service were equal to at least 30 to get an enhance multiplier of 1.55% for the first $90,000 of their final average compensation. Anything over $90,000 will remain subject to the current 1.5% multiplier.

• Application Period-Employees who wanted to retire before November 1 would have to apply by October 22, 2010 @ 5:00 PM. Employees who want to retire between November 1 and January 1 would have to apply by November 5, 2010 @ 5:00 PM.

• Correctional and Conservation Officers- The bill allows employees eligible to retire under the above formulas as a covered employee (positions in a State correctional facility or center for forensic psychiatry) or conservation officers to retire under the increased multiplier as described above or under the current supplementary provisions but not both.

• Leave Implications- Employees retiring under the above forfeit their lump sum payment of accumulated annual leave, sick leave, and other deferred leave time payouts and would instead receive an equal amount through a supplemental retirement allowance payment over 60 monthly installments beginning January 1, 2011. The bill would prohibit such payments from being used to purchase service credit. 
    o It allows employees to use 240 hours of their annual leave to be included in the calculation of the final average compensation. This subsection would not apply to banked leave time. 
    o Please note that an individual may use previously purchased service credits to qualify for retirement under one of the above three formulas.

• Extensions-The bill allows a department director to request an extension and allow an employee to remain until July 1, 2011. It would require approval by the Director of the Office of the State Employer and the State Budget Director. Service accumulated during an extension will not be considered to determine which eligibility criteria, and hence which enhanced pension multiplier, the employee may retire under.

• Additional Costs- The bill requires additional costs to the pension system created by this early out and the increased multiplier to be amortized over a 5-year period.

• Contribution into the IRS 115 Trust- Beginning November 1, 2010, the bill would require that all state employees contribute 3% of their compensation into a trust fund, which under the bill would mean an irrevocable trust which would be established under Public Act 77 of 2010, the Public Employee Retirement Health Care Funding Act, and administered under Section 115 of the Internal Revenue Code. These contributions would be required for three fiscal years and would end on September 30, 2013. Funds deposited in the irrevocable trust could be used to pay for retirement health care benefits for retirees and their eligible dependents now or in the future. The language giving retirees a contractual right to health care benefits was stripped from the final version Public Employee Retirement Health Care Funding Act.

• Modification of Retiree Health Care Benefits - Currently, employees in the Tier 2 defined contribution plan vest in retiree health care benefits including hospitalization, medical, dental, and vision insurance after 10 years of employment. The State pays a portion of the premium for retiree health insurance benefits for Tier 2 retirees in an amount equal to 3% times the number of years of service up to 30 years, not to exceed 90%. For employees hired prior to April 1, 2010, the bill would revise the State portion to equal the lesser of the amount described above or the portion of health insurance premiums paid for by the State for Tier 1 members under Section 20d, which caps the State premium share for Tier 1 retirees at the same share paid for by the State for classified civil service employees. The State currently pays 90% for classified civil service employees (95% if they choose a health maintenance organization (HMO) option), so the bill would not decrease the State's premium share for Tier 2 retirees directly but would tie it to future changes in the State's premium share for Tier 1 retirees and active civil service employees, who were hired prior to April 1, 2010. In addition, the bill would cap the State's health insurance premium share for Tier 2 retirees who were originally hired after April 1, 2010 to the lesser of the premium share provided under Section 20d or to the share provided to active civil service employees hired after April 1, 2010. For most civil service employee positions, the State's premium share was recently negotiated to a maximum of 80% (85% if they choose an HMO option).

• Limited to State Plan-The bill also eliminates the current option that allows retirees to elect health insurance coverage other than what is provided by the Civil Service Commission in Section 20d and requires that the retirement system pay an amount equal to the amount of the State's share of the monthly premium directly to the other health insurance plan or medical savings account. After January 1, 2011, the bill would allow only a retiree or dependent that had previously elected alternative coverage to continue doing so at his or her own cost.

• Independent Contractors (Double Dipping Law Expanded)- Currently statute requires that a retiree, who is employed by the state either directly or indirectly through a contractual agreement with a third party, must forfeit their retirement benefits while employed. The bill would amend this to include retirees who are employed by the state through an arrangement as an independent contractor beginning October 1, 2010. This would not apply to a retiree engaged as an independent contractor on October 1, 2010 as long as he or she remains in the same contract in place on October 1, 2010 without amendment or extension. The bill would also exempt certain retirees working for the Attorney General from both the current double dipping prohibition as well as the additional restrictions on independent contractors.

• Additional Money Needed-The bill provides $1.6 million for FY 2009-10 for the Office of Retirement Services, which is in the Department of Technology, Management, and Budget, for administering the changes required under the bill to be carried forward for use in FY 2010-11.



Roll Call Votes:

House-
Yaes-60
Agema, DeShazor, Jones, Rick, Pavlov, Amash, Dillon, Knollenberg, Pearce, Angerer, Durhal, Kowall, Proos, Ball, Elsenheimer, Kurtz, Rocca, Bledsoe, Espinoza, Leland, Rogers, Bolger, Genetski, Lemmons, Schmidt R., Booher, Gonzales, Lori, Schmidt W., Byrnes, Green, Lund, Schuitmaker, Calley, Haines, Marleau, Scott P., Caul, Hansen, McMillin, Sheltrown, Corriveau, Haveman, Meekhof, Slezak, Crawford, Hildenbrand, Melton, Spade, Cushingberry, Horn, Meltzer, Stamas, Daley, Jackson, Moss, Tyler, Denby, Johnson, Opsommer and Walsh
Nays-45
Barnett, Griffin, Lipton, Scripps, Bauer, Haase, Liss, Segal, Bennett, Hammel, Mayes, Slavens, Brown L., Haugh, McDowell, Smith, Brown T., Huckleberry, Meadows, Stanley, Byrum, Jones Robert, Miller, Switalski, Clemente, Kandrevas, Nathan, Tlaib, Constan, Kennedy, Nerat, Valentine, Dean, Lahti, Neumann, Warren, Donigan, LeBlanc, Polidori, Womack, Ebli, Lindberg, Roberts, Young and Geiss

Senate-
Yaes-20
Allen, Cropsey, Jelinek, Pappageorge, Birkholz, George, Kahn, Richardville, Bishop, Gilbert, Kuipers, Sanborn, Brown, Hardiman, McManus, Stamas, Cassis, Jansen, Nofs and Van Woerkom
Naes-14
Anderson, Cherry, Hunter, Prusi, Barcia, Clark-Coleman, Jacobs, Scott, Basham, Clarke, Olshove, Whitmer, Brater and Gleason