Michigan Legislature Retirement Benefits
Michigan legislators didn't have a retirement program until 1957, when it passed the Michigan Legislative Retirement System Act. The act applies to members of both the State House and Senate, any clerk of the House or secretary of the Senate, and the Lieutenant Governor. Today, the benefits are administered through two different programs: the Defined Benefits Plan for employees hired before March 31, 1997 and the Defined Contribution Plan for employees hired after that date. Both programs are managed by the state's Office of Retirement Services.
Defined Benefits Plan
The Defined Benefits Plan, for state employees hired before March 31, 1997, uses a pension formula based on "final average compensation" and years of service.
Final Average Compensation (FAC for short) is the average of the three consecutive years during which the employee received his highest monetary compensation. The dollar amounts used to calculate the FAC include not only salary, but also overtime and compensation for unused vacation.
The FAC is then multiplied by 1.5 percent (called the "Pension Factor") and by the years of service. Here's an example:
Bob was a State Senator for 14 years. His salary peaked during the years 1999, 2000 and 2001, when he earned $40,000, $41,000 and $43,000 respectively. Based on this information, his FAC is $41,333. When multiplied by 1.5 percent and then by 14 (years of service), Bob's annual pension is $8,680, or about $724 per month.
A Michigan legislator who is at least 55 years old can also opt for early retirement. However, his pension amount is reduced by 1/2 percent for every month he is under 60 years old. In other words, if Bob chooses to retire on his 59th birthday, his pension is reduced by 6 percent, or or $521 per year.
Defined Contribution Plan
The Defined Contribution Plan is for all Michigan state employees (including legislators) who were hired after March 31, 1997. It offers two options, a 401k and a 457. Both plans have auto-invest features that allow employees to choose a percentage of their salaries to be automatically diverted from their paychecks to their preferred retirement plans.
Contributions can be made with either pre- or post-tax dollars, and the state of Michigan matches 401k contributions up to an amount equal to 3 percent of the participant's salary.
Money contributed by an employee is 100 percent vested (owned by the employee) from the moment it's placed in the retirement account. Matching contributions from the State are 50 percent vested after two years of employment, 75 percent after three, and fully vested after four.
Third-party financial advisers are available to meet with employees who are uncertain where or invest in a retirement plan. The state of Michigan provides the service at no charge to its employees.
Health Benefits (Post-Retirement)
Historically, Michigan legislators, in addition to their pension and retirement savings plans, qualified for lifetime health benefits if they'd been in office for six years or longer. On Feb. 24, 2010, however, both the State House and Senate passed legislation ending this retirement benefit. Those elected after Nov. 1, 2010 will not receive long-term health benefits when they retire.
Tags: Benefits Plan, Contribution Plan, Defined Benefits, Defined Benefits Plan, Defined Contribution, Defined Contribution Plan
