After a so-called two month vacation, the Legislature returned on September 7, the same day as oral argument at the Michigan Supreme Court on the pension tax and a big rally on the Capitol grounds about the medical marijuana issue. The agenda for the fall is laden with controversial, high-profile issues.
Michigan Supreme Court Decision Update
Thank you to so many SERA members who showed up at the oral argument. SERA was represented quite well, perhaps the majority of people there! Michigan SERA received good TV, radio, and print press coverage as SERA Coordinating Council Chair Bob Kopasz and SERA attorney Dan McLellan conducted interviews in the lobby after the oral argument. The news media noted the same thing SERA members in attendance noted: the Justices were more interested in the lack of a $20,000 exemption for those pensioners with total household resources above $75,000 than they were in the constitutionality of the pension tax on public employee retirees, our main issue.
As of this writing, October 6, we have no decision from the Michigan Supreme Court about the pension tax. Chief Justice Robert Young hinted to the capitol media a few days ago that the decision is coming soon.
Get Ready for the New Tax Law Impact
The Michigan Department of Treasury has now posted the new Withholding Certificate for Michigan Pension or Annuity Payments, Form MI W-4P on their Web site www.michigan.gov/taxes. This form will be used by pension recipients to notify pension administrators of the correct amount of Michigan income tax to withhold from pension or annuity payments. The form can also be used to choose not to have any Michigan income tax withheld from pension or annuity payments. It does not apply to military pensions or certain pensions paid by the Railroad Retirement Board.
You must file — The form clearly states that “Failure to have sufficient tax withheld from your pension and/or annuity payment(s) may result in a balance due on your MI-1040 as well as penalty and/or interest.” The form allows you to enter a number of personal exemptions (such as 0, 1, 2, etc.) and/or an additional percentage amount, if any, you want to withhold. You cannot indicate a dollar amount to withhold. If you expect to owe more than $500 in income tax and you don’t withhold, then you need to make quarterly estimated payments.
The Treasury Website also has a 10-minute Web cast including great information about the tax law changes and some taxpayer examples. Treasury also has a written summary of the changes that you can print and read at your leisure. If you do not have an internet connection, your local library can assist you to go to the Treasury Website.
The Office of Retirement Services will be including directions on withholding in the October issue of its semi-annual Connections newsletter to state retirees. We have been told that two additional communications to state retirees about withholding will also occur in December and January.
Calculating your withholding — All Michigan residents are going to see some change in their tax liability. Those 65 and above are going to lose the $2,300 special personal exemption, which will cost $100 a year in additional income tax. The Homestead Property Tax Credit is changing significantly. If you have a house with a taxable value of $135,000 or more, or total household resources (pension, social security, investment income, earnings, etc.) of $50,000 or more for a single person or $100,00 for joint filers, you are not eligible for the new HPTC at all. Only if your total household resources are below $21,000 a year will you be eligible for the full $1,200 HPTC. There is a graduated HPTC between $21,000 and $50,000 total household resources. There are many other changes to subtractions, deductions, exemptions, and credits. You need to consult with your tax preparer to best anticipate these changes so that you can calculate the proper amount to withhold from your pension. Many tax preparers will receive training this fall. You may have more information than they do at this point.
The new tax law is already undergoing changes. A series of so-called “technical fix” bills have been going through the hearing and approval process. None repeal the pension tax or appear to diminish the tax shift from business to individuals. Bills to extend the pension tax exemption to private pensions if the pension tax on public employees is overturned by the Michigan Supreme Court have been introduced in both houses (SB 686 and HB 5003).
SB 7 signed into law — The Governor signed SB 7 on September 27. It prohibits public employers from paying more than 80% or certain hard cap dollar amounts for public employee health care premiums. The ban on domestic partner benefits in public employment, HB 4770 and 4771, passed the House and awaits action in Senate Reforms Committee. These bills are unenforceable against the state as an employer or university employers. At the recent Civil Service Commission meeting, it was revealed that fewer than 100 state employees and dependents had signed up for domestic partner benefits and the total tab was less than $600,00, far less that the $8 million projected by the House Fiscal Agency.
Legislative retiree health care — The House and Senate have passed HB 4087, which would abolish retiree health care for legislators whose first term of legislative service began after January 1, 2013. Legislators currently are vested 90% in retiree health care after 6 years of service at the age of 55. Michigan SERA opposes the current overly generous legislative retiree health care, but also opposes abolishing their retiree health care benefit entirely. We have suggested that they model their retiree health care benefit to parallel the current state employee retiree health care benefit to de-politicize the issue. Vesting would be after 10 years of service at 30%. The maximum would be 42% vesting because of term limits of 14 years. In other words, if they used the benefit, their premiums would be 58%.
Also we oppose changing the retiree health care benefit for current legislators just like we would oppose changing the retiree health care benefit for current state employees. In our view, only new legislators elected after January 1, 2012 should face a newly structured retiree health care benefit. Michigan lawmakers do not receive a defined benefit pension, but do have a 401K plan.
Senior Protection Package — The Senate Families, Seniors, and Human Services Committee reported out bills associated with protecting seniors from financial and other abuse and neglect. SB 454 - 468 have been widely supported by the various senior organizations; the Banker’s Association was neutral on the bills. Nearly 80,000 Michigan residents are victims of abuse according to the Senate press release. Measures in the package would:
Welfare cut back — Restrictions on cash assistance went into effect October 1, throwing over 12,000 families and their children off welfare. Advocates for the poor and charities who help them are predictably alarmed. A court has enjoined the measure pending more adequate notice to the recipients of the impending action.
Expected fall legislative topics — Expected issues this month for legislative consideration are reform of the personal property tax; raising the charter school cap; enabling more school privatization; changing the school employee pension from defined benefit or hybrid to defined contribution pensions; regulating medical marijuana; more effort on the proposed new International Trade Bridge from Detroit to Canada; right-to-work legislation; and eliminating or reducing the mandatory catastrophic care feature of no-fault auto insurance.
Concessions for FY 2012 — The state unions and the Office of the State Employer failed to agree on the $145 million in concessions baked into the FY 2012 budget. Unions proposed cutting contracts 10%, shrinking the number of managers, and other efficiencies. These ideas were rejected and instead management is eliminating 367 vacancies and imposing 4 furlough days on most state employees this fiscal year.
Non-exclusively represented employees will not be expected to take the furlough days because they did not receive the 3% raises on October 1, 2010 that unionized state employees received. Part of the plan is also to close Mound Correctional Facility near Detroit and turn over all prison health care and prison mental health services to a private contractor affecting potentially 2,000 Department of Corrections’ jobs.
The state is also planning on $18.8 million coming from a 4% contribution from defined benefit employees, now less than half the state workforce. This assumes HB 4701 or an equivalent bill passes and goes into effect January 1. The bill is currently in the House Appropriations Committee and has had two hearings. SERA opposes most aspects of HB 4701.
FY 2013 Union Negotiations — State employee unions and the Office of the State Employer have filed their routine Impasse Panel request with the Civil Service Commission concerning FY 2013 pay and benefits while negotiations continue. If the collective bargaining negotiations result in changes to health care benefits, state employee retirees could be affected. Impasse Panel hearings typically occur in early November for Civil Service Commission action in December or January.
Benefit premiums remain stable for FY 2012 — The recent mailing from the CSC’s Benefits Division to state retirees indicates good news: the state does not plan any health care insurance premium changes to the State Health Plan PPO administered by Blue Cross/Blue Shield for the 2011-12 fiscal year. But the HMO premiums have increased. Only 5% of state retirees are in an HMO. Dental and vision premium rates will remain the same for the 2011-12 fiscal year also. The Kaiser Family Foundation’s recent annual survey indicates that health care costs have increased 9% this year. It also found that among large employers, only 26% are now offering retiree health care benefits.
New CSC Commissioner — Governor Snyder has appointed James Barrett, retired President of the Michigan Chamber of Commerce, to fill the unexpired term of Civil Service Commissioner Andrew Abood. A Google search revealed the following description: “[Barrett] serves as a consultant to clients on product marketing, foundation and association management, venture capital formation and business incubation, political fundraising, and legislative advocacy. This includes his role of Executive Vice President of The Amy Foundation. The Amy Foundation sponsors the annual Amy Writing Awards, a program which encourages writers to promote biblical truth in the secular media, both online and in print. There are 15 annual prizes awarded totaling $34,000. Jim received an Associate in Business Degree from Lansing Community College (Distinguished Alumni Award Recipient in 1999), a Bachelor’s Degree in Financial Administration from Michigan State University, and a Master’s Degree in Management from Aquinas College.”
Granholm’s new book — Former Governor Granholm and her husband Tom Mulhern were back in Michigan recently and on most talk shows promoting their new book A Governor’s Story: The Fight for Jobs and America’s Economic Future. Her message: we tried downsizing and tax cuts, but they didn’t end Michigan’s recession. The question for the nation is whether there is something that can be done now to prevent a prolonged recession from happening to the whole country in the way that Michigan experienced. She contends that only a partnership with the federal government can help because individual states simply do not have the tools to compete against China or the globe.
Recall Rick dead — The effort to recall Governor Snyder has officially been abandoned. Dozens of other recalls of legislators are still active. The only recall on the ballot for November 8 is that of Representative Paul Scott of Grand Blanc, and he has several court appeals pending to stop it.
3% mandatory payroll contribution — The state has appealed the Court of Appeals decision to uphold a Court of Claims order that the 3% mandatory state employee contribution to retiree health care insurance was unconstitutional because it did not have Civil Service Commission approval. Over $72 million is being held in escrow pending the outcome. The 3% began to be taken from paychecks in November 2010 and continues even though the CSC has ordered it to stop.
News of the Day — If you are a SERA member, you are eligible to receive News of the Day, a periodic e-mail about breaking news and media stories of interest to state employees and retirees. If you would like to receive this e-mail, please write to firstname.lastname@example.org giving your name and chapter.
Editor’s note: Mary Pollock is the Lansing SERA Chapter and SERA Council’s Legislative Representative. She may be contacted at 1200 Prescott Drive, East Lansing, MI 48823-2446; Phone 517-351-7292; E-mail email@example.com.
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