Legislative Analysis
Phone: (517) 373-8080
MPSERS ANNUAL CONTRIBUTION REQUIREMENTS
http://www.house.mi.gov/hfa
House Bill 5803 (S-1) as passed by the Senate Analysis available at
Sponsor: Rep. Matt Koleszar http://www.legislature.mi.gov
House Committee: Appropriations [Discharged]
Senate Committee: Appropriations [Discharged]
Complete to 9-25-24
(Enacted as Public Act 127 of 2024)
SUMMARY:
House Bill 5803 would amend the Public School Employees Retirement Act to do all of the
following regarding the Michigan Public School Employees Retirement System (MPSERS):
• Provide that, for FY 2024-25, the unfunded actuarial liability (UAAL) contribution
must equal the actuarially determined contribution (rather than having to equal or
exceed the UAAL contribution amount for FY 2023-24).
• Provide that, beginning with FY 2025-26, the normal cost contribution rate for retiree
health benefits is not required to equal or exceed the normal cost contribution rate in
the previous fiscal year.
• Provide that, beginning with FY 2025-26, the UAAL contribution rate applied to
payroll must not exceed 15.21%. This provision would not apply to the seven
universities that participate in MPSERS. (The current rate cap is 20.96%.)
• Eliminate, beginning with FY 2025-26, the 3% contribution toward retirement health
care benefits now required of MPSERS employees hired before September 4, 2012.
MCL 38.1341 and 38.1343e
FISCAL IMPACT:
House Bill 5803 (S-1) would provide net savings for the state School Aid Fund (SAF) in FY
2024-25, increase SAF costs by reducing eligible reporting unit UAAL costs (FY 2025-26 and
beyond), and increase costs for eligible reporting units by reducing costs for retirement system
members currently contributing 3% of salary for normal costs associated with other post-
employment benefits (OPEB). Additionally, beginning in FY 2025-26 the normal cost
contribution rate for retiree health care would be exempt from the normal cost floor, which
would generate additional unknown savings to eligible reporting units when estimated normal
costs are below the current-law rate floor of 1.25%. As described below, savings for the SAF
for FY 2025-26 and beyond due to OPEB being fully funded were already assumed for
purposes of this analysis.
Currently, the Public School Employees Retirement Act includes a floor provision requiring
annual contributions toward the pension and OPEB unfunded actuarial accrued liability to be
no less than the prior year until the UAAL reaches 100% funded status. Based on the 2022
valuation (used for the FY 2024-25 budget), the OPEB UAAL was 99.2% funded, which would
retain the floor provision for FY 2024-25. The bill would remove the floor provision for FY
2024-25 (one year earlier than projected), which would reduce state costs by approximately
$669.4 million in FY 2024-25. Under current projections, the system would have triggered
removal of the floor provision for FY 2025-26; therefore, the bill does not affect savings
House Fiscal Agency Page 1 of 3
(approximately $679.8 million) in future fiscal years because the savings were already
anticipated.
The reduction in the non-university reporting unit UAAL contribution rate on payroll to
15.21% would reduce reporting unit costs (and therefore increase costs to the SAF) by
approximately $615.1 million in FY 2025-26. Due to rising payroll, the reporting unit savings
increase annually, reaching an estimated $685.6 million by FY 2029-30. The net impact on the
SAF from the removal of the OPEB funding floor and the reduction in the reporting unit UAAL
contribution rate on payroll is reflected in Table 1, on page 3. It should be noted that the $680.0
million in savings that was anticipated under current law is included simply to show that the
OPEB savings for the SAF would be passed on to eligible reporting units through the reduction
in UAAL contribution rate. Relative to current law, the SAF would realize increased costs
equal to the "UAAL Cap Reduction Cost" column in Table 1.
The bill would also remove the 3% contribution that OPEB-eligible teachers are paying for
normal costs and shift those costs to the reporting unit. The 3% is expected to equal
approximately $171.8 million in FY 2025-26 and is anticipated to decline by about $10.0
million per year as that closed class of teachers continues to retire. The net impact on reporting
units from the savings generated from the reduction in the 20.96% UAAL contribution cap to
15.21% and the costs incurred by shifting the employee 3% to reporting units is reflected in
Table 2, on page 3.
The FY 2024-25 School Aid Budget appropriates $598.0 million ongoing SAF revenue to
reimburse reporting units for the equivalent cost of reducing the UAAL contribution rate on
payroll to an estimated 15.22%. This does not lower the statutory cap in the Public School
Employees Retirement Act, but does provide ongoing funding to local units in an amount equal
to the savings they would receive under a 15.22% cap in FY 2024-25.
The FY 2024-25 School Aid Budget also appropriates $181.5 million one-time SAF revenue
to reimburse OPEB-eligible teachers for their 3% contribution. As with the UAAL cap
reduction, this does not include a statutory change to the Public School Employees Retirement
Act. Unlike the UAAL cap reduction, however, the funding is intended for FY 2024-25 only
and is not an ongoing appropriation. The budget also provides that, if the 3% requirement is
removed from the Public School Employees Retirement Act (presumably, because the cost is
shifted to local units), the $181.5 million must be retained by local units rather than sent to
teachers.
House Fiscal Agency HB 5803 (S-1) as passed by the Senate Page 2 of 3
Table 1: Impact to School Aid Fund
(amounts in millions)
Fiscal Year OPEB Savings* UAAL Cap Reduction Cost Net Savings/Cost
FY 2024-25 $670.0 $0 $670.0
FY 2025-26** 680.0 -615.1 64.9
FY 2026-27** 680.0 -632.0 48.0
FY 2027-28** 680.0 -649.4 30.6
FY 2028-29** 680.0 -667.2 12.8
FY 2029-30** 680.0 -685.6 -5.6
* OPEB savings is $680.0 million ongoing but will also cost $10.0 million one-time in FY 2024-25,
for a net of $670.0 million.
** OPEB savings in FY 2025-26 and beyond were anticipated under current law and would not be
affected by HB 5803 (S-1). The expected savings are shown to indicate that the UAAL cap reduction
is shifting the OPEB savings for the SAF to eligible reporting units. The cost to the School Aid Fund
relative to current law would be equal to the UAAL Cap Reduction Cost column amounts. UAAL
cap reduction costs begin to exceed OPEB savings in FY 2029-30.
Table 2: Impact to Reporting Units*
(amounts in millions)
Fiscal Year UAAL Cap Savings 3% Normal Cost Shift Net Savings
FY 2024-25 $0 $0 $0
FY 2025-26 615.1 -171.8 443.3
FY 2026-27 632.0 -161.9 470.1
FY 2027-28 649.4 -151.8 497.5
FY 2028-29 667.2 -141.9 525.4
FY 2029-30 685.6 -132.0 553.6
* Reporting units for UAAL include: traditional local school districts, public school academies
(PSAs), intermediate school districts (ISDs), district libraries, and community colleges. Reporting
units for 3% include the units for UAAL plus universities.
Legislative Analyst: Rick Yuille
Fiscal Analysts: Ben Gielczyk
Jacqueline Mullen
Noel Benson
■ This analysis was prepared by nonpartisan House Fiscal Agency staff for use by House members in their
deliberations and does not constitute an official statement of legislative intent.
House Fiscal Agency HB 5803 (S-1) as passed by the Senate Page 3 of 3
Statutes affected: Substitute (H-2): 38.1341, 38.1343
Substitute (S-1): 38.1341, 38.1343
House Introduced Bill: 38.1341, 38.1343
As Passed by the House: 38.1341, 38.1343
As Passed by the Senate: 38.1341, 38.1343
House Concurred Bill: 38.1341, 38.1343
Public Act: 38.1341, 38.1343
House Enrolled Bill: 38.1341, 38.1343