Rough Road for Pension Reform in New Senate?

Seven of the 20 state senators who voted to reform the Michigan Public School Employees’ Retirement System two and a half years ago will leave the Legislature at the end of this year. That puts a continuation of the Senate’s current on-the-record position in favor of reforming MPSERS in doubt.

On May 17, 2012, by the narrowest of margins, the Senate voted 20-18 to close the defined-benefit school pension system to new hires and – in its place – put those employees in 401(k)-style plans. Closing the system to new hires would gradually end the perpetual underfunding of the pension system, in which required annual contributions had increased from $989 million in 2009 to $1.9 billion in 2013.

When the Senate voted to close the system in 2012, the move came as a surprise to many. Rumors at the time suggested Gov. Rick Snyder did not want the change and ultimately he and the House rejected the Senate-passed reform. The system was not closed and the annual contribution is now scheduled to increase to $2.3 billion in 2016. Nonetheless, the vote taken by the Senate in the spring of 2012 showed that at least the upper chamber of the Legislature was ready to take the bold step. But beginning in 2015 that may no longer be the case.

In 2012, Sen. Phil Pavlov, R-St. Clair, and Sen. Mark Jansen, R-Gaines Twp., spearheaded the move to close the system. Sen. Jansen is leaving at end of the year due to term limits. But Sen. Pavlov, who chairs the Senate Education Committee, was just re-elected to a second Senate term.

Sen. Pavlov said he regards the job of convincing the full Legislature and the Snyder administration to reform the school employee retirement system as unfinished business.

“The Legislature in the last four years has done a lot to tackle Michigan's biggest problems,” he said. “One area where there's clearly still work to be done is the massive debt from outdated public pensions, and MPSERS is the biggest of those liabilities.”

One of the early obstacles Sen. Pavlov could face will likely be shoring up support for closing the pension in the new Senate Republican caucus. In addition to Sen. Jansen, the senators who voted to close the system and who will no longer be in the Senate after Jan. 1 are: Sen. Bruce Caswell, R-Hillsdale; Sen. Roger Kahn, R-Saginaw; Sen. John Moolenaar, R-Midland; Sen. John Pappageorge, R-Troy; Sen. Randy Richardville, R-Monroe; and Sen. Howard Walker, R-Traverse City.

Sens. Caswell and Walker are retiring from the Legislature. Sen. Moolenaar was elected to Congress. The other senators are being termed out of office.

All 12 Democratic senators voted against closing the pension system in 2012. In 2015, the number of Democrats in the chamber will drop to 11. The six Republican senators who voted against closing the pension system in 2012 were: Sen. Tom Casperson, R-Escanaba; Sen. Mike Green, R-Mayville; Sen. Goeff Hansen, R-Hart; Sen. Rick Jones, R-Grand Ledge; Sen. Mike Nofs, R-Battle Creek; and Sen. Tory Rocca, R-Sterling Heights. All of these senators are returning for a second term.

Presuming the Democrats and these six Republican senators remain opposed to closing the pension system, seven of the eight new incoming GOP senators would have to favor closing the system for the Senate to remain in support of the reform.

Of the eight newly elected Republicans coming into the Senate in 2015, six are currently House members. They are: Rep. Peter MacGregor, R-Rockford; Rep. Margaret O’Brien, R-Portage; Rep. Wayne Schmidt, R-Traverse City; Rep. Mike Shirkey, R-Clarklake; Rep. Jim Stamas, R-Midland; and Rep. Dale Zorn, R-Ida.

The other two newly elected GOP senators are former House members Ken Horn of Frankenmuth and Marty Knollenberg of Troy.

Voting patterns in both the House and Senate would probably be altered if the Snyder administration decided to support closing the pension system. Without backing from the administration, however, persuading a majority of Senate Republicans to again challenge that position – as occurred in 2012 – could prove an uphill struggle.

In 1996, a Republican Legislature barely approved former Gov. John Engler’s proposal to close the defined-benefit system for state employees, a move that has saved taxpayers an estimated $2.3 billion to $4.3 billion in unfunded liabilities according to a 2011 analysis. Gov. Engler’s original proposal also included closing the public school pension system, but in the face of intense lobbying from school employees and the teachers union he was unable to persuade enough GOP legislators to go along.