The Macomb Daily (Michigan)
August 30, 2013
By Charles Crumm
Many were surprised when Republican Michigan Attorney General Bill Schuette jumped into the Detroit bankruptcy debate on behalf of city retirees, who could lose pension benefits during the city’s pending court proceedings.
“Retirees may face a potential financial crisis not of their own making, possibly a result of pension fund mismanagement,” Schuette said in his late July announcement, though he also cited a legal argument that Michigan’s constitution prevents public pension obligations from being “diminished or impaired.”
But Schuette is a public employee, too — albeit an elected one — and the fate of retirees in the Detroit bankruptcy filing could have repercussions for any retiree drawing a public pension. [EXPAND Read more]
In his filings on behalf of Detroit retirees, Schuette notes that the average pension for city workers is $18,000 a year and the average pension for police officers and firefighters is $30,000.
Pension and health care costs are a big part of Detroit’s bankruptcy. In authorizing the city’s bankruptcy filing, Gov. Rick Snyder noted $18 billion in city debt and unfunded liabilities, including health care and pensions. Pension and health care liabilities will be up to the courts to decide, Snyder said in a frequently asked questions section on the city’s bankruptcy filing.
The state of Michigan has taken steps to curb its liabilities for state employee pensions and retiree health care for more than a decade. Beginning in 1997, elected lawmakers and other state employees were required to join defined contribution plans — essentially a 401(k) — rather than a traditional defined benefit pension plan that guaranteed retirees a monthly payment.
As the debate over unfunded public pension liabilities continues in many local governments across Michigan, however, it’s unlikely that retirees from the city of Detroit — or most in the private sector — receive or will ever draw pensions as generous as those of Schuette and other former Michigan lawmakers, who had their own pension plan when they were in the Legislature.
Schuette’s eight years in the Michigan Senate nets him $3,269.79 a month — or $39,237.48 a year, according to a Freedom of Information request filed with the Michigan Legislative Retirement System. That’s on top of his $112,410 salary as Michigan’s attorney general.
Schuette, who will be 60 in October, has served three two-year terms in Congress, three years as director of the Michigan Department of Agriculture, two four-year terms in the Michigan Senate, and six years as a judge of the Michigan Court of Appeals before his election as attorney general in 2010.
The AG is among 282 Michigan lawmakers, or their survivors, who are drawing monthly pensions, some while they remain elected officials in a new role or continue to hold other paid public office. A few of them have pensions that exceed their salaries when they were in the Michigan Legislature.
Besides Schuette, other recognizable names receiving legislative pensions from Michigan include U.S. Sen. Debbie Stabenow and former governor John Engler.
Schuette is by no means the heavy hitter on the pension list from the Michigan Legislature, at least in a relative sense.
Engler spent 20 years in the state Capitol, earning him a monthly pension of $8,468.02, or $101,616.24 a year. That doesn’t include the lucrative pension benefits Engler receives for the 12 years he spent as Michigan’s governor.
Stabenow gets $5,362.41 a month, or $64,348.92 a year, for the 16 years she spent in the Michigan Legislature. That’s on top of her U.S. Senate salary of $174,000. She was elected to a third six-year term in the U.S. Senate last November.
But even Engler and Stabenow don’t top the list of the highest-paid Michigan legislative pensioners.
That honor goes to former Senate Minority Leader Art Miller, a Warren Democrat who gets $10,100.14 a month, or $121,201.68 a year, for his 25 years, 7 months and 17 days in the Michigan Legislature.
Currently, Michigan lawmakers in Lansing are paid a salary of $71,685 plus an expense allowance of $10,800. They get extra pay if they hold leadership positions in the Michigan House or Senate, according to the State Officers Compensation Committee.
The SOCC sets pay every two years for the governor, lieutenant governor, secretary of state, attorney general, members of the Legislature, and Michigan Supreme Court justices.
Since 2002, the SOCC recommendations take effect if approved by the House and Senate.
Legislators’ pay peaked in 2010 at $79,650 when the SOCC recommended a 10 percent decrease to the current levels.
But the SOCC also has recommended hefty increases. Lawmakers in 2000 were paid $56,981, but that pay jumped to $77,400 in 2001, based on an SOCC recommendation. At that time, pay changes took effect unless the Legislature voted to disapprove them.
Current lawmakers are no longer under the pension plan of their predecessors such as Schuette, Engler, Stabenow and Miller.
Legislation approved in 1996 required future lawmakers, those elected after March 30, 1997 — and all state employees — to join a 401k-style plan, in effect closing the generous traditional pension plan enjoyed by their predecessors.
At the time, sitting lawmakers could remain in the defined benefit plan, switch to the defined contribution plan, or keep the defined benefit amounts with future contributions going to the defined contribution plan that’s not administered by the Michigan Legislative Retirement System.
A typical defined benefit pension uses a formula that multiplies final average compensation by years of service by a pension multiplier.
Michigan lawmakers had their own retirement system separate from other state employees, and with a different formula for determining their monthly pensions when they left.
So just how generous was the formula in the old legislative defined benefit plan?
A 2011 audit of the Michigan Legislative Retirement System summarizes the formula for legislative pensions:
“For those legislators who first became members on or before January 1, 1995, the retirement benefit is calculated by multiplying 20 percent of the highest salary earned for the first 5 years of service, plus 4 percent of the highest salary for each of the next 11 years of service, plus 1 percent of the highest salary for each additional year.
“For those legislators who first became members after January 1, 1995, the retirement benefit is calculated by multiplying 3 percent of the highest salary for each year of service.”
Lawmakers elected after the switch in 1997 receive the same defined contribution plan as any other state employee.
Michigan, through its taxpayers, now matches 4 percent of a lawmaker’s pay. A legislator has the option to put in up to an additional 3 percent, which the state will also match.
Besides generous cash benefits, lawmakers and their spouses have historically qualified for lifetime health benefits if they were in office for six years or more.
But that changed in 2010 when the Legislature ended that benefit for lawmakers elected after Nov. 1, 2010.
For Schuette, defending Detroit retirees during the city’s bankruptcy is a constitutional obligation.
“Article 9, Section 24 in our state constitution says that pensions may not be impaired or diminished,” he says. “It’s my job to stand up for the constitution. If I did not do that, then I would be selectively enforcing it.”
Schuette shrugs off questions about his own legislative pension.
“This is about cops and firefighters,” he says. [/EXPAND]