House Fiscal Agency releases report on proposed retirement reform

 

The plans outlined by Governor Jennifer Granholm to provide an incentive for state employees to retire would save the state's general fund $758.1 million by 2020, while gross savings would total $1.95 billion, according to a new review by the House Fiscal Agency.

The bulk of her proposed changes - increasing the pension multiplier by 0.1 percentage point, raising terminal leave payments and retiree health care costs - will actually cost $617 million, but Ms. Granholm's savings of $2.6 billion come from not replacing everyone who walks out the door.

Other savings come from capping years of service at 30, requiring all employees to pay 3 percent of their salary for their pension and eliminating dental and vision insurance coverage for those who retire after October 1.

Ms. Granholm's proposal also includes an option for retirees 60 or older to work part-time while drawing on their pension. The option would be up to management's discretion, the reason why the Executive Office has no estimates on how this would impact the budget.

The fiscal agency found that the proposal assumes 85 percent of the 7,400 potential state retirees will take advantage of the retirement plan if the Legislature approves it. The bulk of the eligible retirees would come from the Department of Human Services, where 2,357 workers could retire based on their service years and credits purchased.

Changes proposed to MPSERS

The fiscal agency also broke down the impact of the governor's proposal for school employees, although any savings from those changes would accrue at the local level and again are based off of the same incentives for retirement.

However, the governor's plan for schools does create a hybrid pension and defined contribution plan for NEW EMPLOYEES. School employees currently are on a traditional pension plan.

Under the hybrid plan, final average compensation would be based on nine years, not three, any cost of living adjustments would be eliminated, and the minimum retirement age would increase to 65. Minimum retirement age for the basic plan currently is 55.

If the entire school package was enacted and 75 percent of the 38,600 potential retirees leave it would save $6.4 billion over the next 10 years. Immediate savings to schools would total $701.1 million, according to the fiscal agency, which based its numbers from information provided by the State Budget Office and Office of Retirement Services.

Read House Fiscal Agency reviews:
For state employees…
For school employees…
Source: Gongwer, 2.19.10