The MC: The Mackinac Center Blog

House Republican Policy Plan Lays the Groundwork for Action

Pensions, education, criminal justice all areas ripe for change

Michigan House Republicans present their action plan.

The Michigan House Republicans have released their action plan, which contains their goals for the legislative body for the next two years. Overall, it is very good, as most of the recommendations would lessen the scope and power of state government.

Below are some highlights from the plan, each followed by a commentary.


The Michigan Public School Employee Retirement System’s debt has grown so immense that it is hurting our kids. The system is only 61-percent funded and has more than $25 billion in long-term debt. Currently, 36 percent of education dollars for payroll go to cover pension liabilities. As that gigantic liability continues to grow, more and more resources are redirected out of the classroom, hurting all Michigan students. … [E]nding unsustainable public employee legacy costs … ha[s] eluded lawmakers for far too long.

Michigan closed its state employee pension system to new workers in 1997 but did not make a similar change to its school pension system. That system costs the state $4 billion each year and its liabilities have skyrocketed. Over one-third of school payrolls go to this system, the vast majority of which pays on its debt — which still keeps increasing. This is an existential crisis to teachers and taxpayers, and the only way to solve it is to shift new, incoming workers to a defined contribution plan. Learn more here.

Stay Engaged

Receive our weekly emails!

Income Tax

A simple and fair tax code is key to signaling that Michigan is a welcoming place for workers and job providers alike. Therefore, further action is necessary to lower the state’s tax burden and improve the lives of every worker in Michigan, especially those living paycheck to paycheck. We will consider proposals to improve the current tax system by focusing on the areas of reducing personal income taxes and examining and simplifying the tax code.

In 2007, Michigan hiked its income tax by 12 percent with the promise that the increase would be repealed by 2015. But that so-called temporary hike has still not rolled back, despite the state’s budget increasing by $6 billion — up to an all-time high. That tax increase has cost Michiganders a total of $6.3 billion, or more than $1,000 per typical household. Learn more here.

Corporate Welfare

To provide people with more opportunities, we will support a broad-based economic environment that is friendly to job creation and business growth, no matter the size of the business. We are also going to protect the taxpayers’ investment by making sure the funds used by the Michigan Economic Development Corporation are transparent to the public, directed toward long-term viability, help small businesses and are not wasted on picking winners and losers.

Michigan has vast corporate welfare programs that take roughly a billion dollars out of the general fund this year. The House should hold the line on new proposals, cut back on what we are paying, and require transparency for what’s already on the books. Learn more here and here.


Burdensome regulations unjustifiably complicate people’s everyday lives and deter businesses from creating new jobs. … We are committed to reducing these burdens through streamlining state permitting processes, limiting extensive and new licensing requirements, and updating the state rulemaking process to increase legislative oversight.

Michigan requires licenses — special government permission — for at least 160 occupations. This costs jobs, income and population. The Legislature should set up a process to review those not shown to protect health and safety. Learn more here.

Educational Choice

Parents should have every opportunity to send their child to a school that best fits their child’s needs. This must include many options, such as charter public schools, traditional public schools, private schools, online schools, and home schools. There is no better measure of a child’s potential for success in school than a parent actively engaged in his or her child’s education. We will support proposals to fund students instead of institutions, and give parents more control over their child’s education. Opportunities such as vouchers or education savings accounts to empower students and parents should remain at the center of our discussion.

The research on parental choice shows that it works. More importantly, the freedom to choose a child’s school is fundamental. Good for the House Republicans keeping this front and center. Learn more here.


Protecting property rights is a fundamental condition for all other liberties, and the government’s ability to seize private property was always meant to be only a power of last resort. We will continue to review and reform our laws to ensure fairness and accountability when government undertakes this extreme measure. Put simply, it should never be easy for the government to take someone’s private property. Strengthening these rights will continue to reinforce Michigan’s reputation as a leader in private property rights.

Law enforcement officials have and should continue to have the ability to seize property while they investigate criminal activity. But the problem with Michigan’s laws is that they allow law enforcement to take ownership of property without a criminal conviction. The Legislature should eliminate civil forfeiture and replace it with criminal forfeiture — where the government can only take ownership of property through forfeiture after it has convicted a person of a crime. Learn more here.

Auto Insurance

Our no-fault system must be reassessed with an eye toward reducing costs. People deserve a more efficient and fair auto insurance system, and we will work to protect drivers while making auto insurance rates more affordable.

Michigan is a national anomaly in mandating a no-fault auto insurance system along with unlimited coverage known as “personal injury protection.” Our drivers pay among the highest costs in the nation, and twice the national average. Learn more here.

This is the third action plan released by the House GOP and in the past, the results have been mixed. The key for the House is overcoming expected opposition to free-market issues from the Republican-dominated Senate or Gov. Rick Snyder. At the same time, the House GOP should welcome good policy ideas coming from the other parts of government.

The document isn’t all-encompassing. It’s missing some key issues, like prevailing wage, as well as union release time and recertification (learn about those and other issues here). But overall, it is a solid document with issues the House should pursue.


Related Articles:

What the New Legislature Should Stand For — And What It Should Not

National Labor Expert: Right-To-Work Just the Beginning for Missouri

Finding Agreement in Criminal Justice Reform

Wasting No Time on Criminal Justice Reform

Tying Teacher Evaluations to Student Achievement Would Be Major Reform

New Subsidies More about Political Development than Economic Development

Economic conditions matter more than giving targeted taxpayer dollars to developers

Some officials have argued lately that the state will see the benefits of new projects — which they label “transformational” — only if taxpayers hand out more in subsidies through measures such as Senate Bill 111 and its companions. But plenty of development is built without direct taxpayer support.

The Census Bureau keeps a database of housing permits, organized on a state-by-state basis. It includes breakdowns for single family housing and multiunit housing developments. Developments of five units or more took a beating during the recession but have since recovered. The Census Bureau also publishes data on nonresidential, nonindustrial and nongovernmental construction, an imperfect measure of commercial and retail construction.

Stay Engaged

Receive our weekly emails!

Construction doesn’t seem to be influenced much by recent changes in state economic development policy. The state converted one of its development credit programs to a smaller direct subsidy program beginning in 2012. The replacement program delivers fewer dollars to developers, which is probably why lawmakers are talking about ways to make sure it sends them more.

The change seemed to have had little effect on the market. Indeed, housing development spiked after the reform. This is not likely due to the policy change, but rather due to the state’s general economic recovery.

Commercial and retail construction shows a less substantial response to the recession. It has bounced around $4 billion to $5 billion annually since 2009 with a recent upward trend. But likewise, there seem to be broader factors at work than policy changes from Lansing.

The lesson is that plenty of development will happen independent of lawmakers lavishing select projects with taxpayer dollars.

If this latest effort to establish a more elaborate state program were about growing the economy, there would be performance targets in the legislation. After all, programs that are meant to transform the economy should not pay out taxpayer dollars unless they show that economic outcomes increase as a result. Lawmakers ought to state exactly which of the important metrics — income, employment or production — will be improved and how much. If the state should promote developments that the bill supporters say are transformational, then it should spell out exactly what that transformation should mean for the local economy. What transformations can we expect to be clearly attributable to a particular subsidized project?

We’re unlikely to get this clarity, however. It would be difficult for anyone to demonstrate that these projects will make much of a change; developers would face a hard obstacle to overcome before getting taxpayer dollars.

An attempt to prove that a taxpayer handout brought a significant transformation is doomed to fail. This is because the core of a community is not in the city’s buildings, but rather in the productive uses of its people. The economy is decentralized: It is the result of millions of people working together to find better ways to use their knowledge, skills and resources. The places that do well are those putting these things together.

People will continue to build communities without this legislation or other giveaways. Michigan’s recovery has been strong and broad. It will continue to be without creating new ways to subsidize developers.


Related Articles:

Do Not Assume Economic Development Spending is Effective

Michigan House Rejects Cronyism Bills

How to Improve Economic Development Transparency

What Happens When the Michigan Economic Development Corporation Ends?

Profiles in Courage in Defense of Taxpayers

People First or Well Connected Developers?

People First or Well Connected Developers?

We should provide tax relief for all instead of favors to a select few


The Michigan Senate has advanced legislation that amounts to handing taxpayer cash over to well-connected developers. According to the nonpartisan Senate Fiscal Agency, the bills would transfer up to $1.8 billion from regular taxpayers to these special interests over the next 20 years.

Meanwhile, on the other side of the Capitol, a state House committee has advanced legislation to deliver some income tax relief to regular Michigan families. The bill would roll back a “temporary” tax hike imposed by Democrats in 2007 and made permanent by Republicans in 2012.

That tax hike has extracted at least $6.3 billion from families since 2007 — and at least $771 million last year alone.

A growing state economy has increased state tax collections, but legislators must still face choices. Unless Republican lawmakers are willing to embrace big spending cuts, they may find themselves in an uncomfortable position with voters. They must explain why they couldn’t let taxpayers keep a modest 0.35 percent of what they earn, but they could find a way to deliver huge handouts to a few wealthy and well-connected developers.

Stay Engaged

Receive our weekly emails!

The higher tax rates have real consequences beyond the damage to household income statements and balance sheets. One involves the choice people may make to emigrate to a state with fewer obstacles to getting ahead.

It just may be that more people made that choice after Michigan lawmakers imposed an 11.5 percent income tax hike in 2007, increasing the tax rate from 3.9 percent to 4.35 percent. The question of why people move prompted us to ask Mackinac Center adjunct scholar Michael Hicks to undertake an empirical study to find out what influences a person’s decision.

Using statistical tools to separate out factors like warmer weather and more sunshine, he determined that for every 10 percent increase in the personal income tax rate, Michigan loses another 4,900 people every year thereafter.

In other words, that specific 2007 tax hike may have cost this state more than 50,000 residents in the past 10 years, along with their incomes, the tax dollars they formerly paid and their priceless human energy and talent.

Reversing that trend would seem a high priority for Gov. Rick Snyder, who set a goal in his 2017 State of the State speech of attracting more than 70,000 new Michigan residents from elsewhere. But rather than being a cheerleader for lower taxes, the governor says he has concerns about the House’s income tax cut.

Like legislators, the governor may have to choose: support tax relief for families and small business, or give up on attracting new residents — and watch more people leave for places where they have to pay less.

That last bit is not just speculation. Recently one of the authors (LaFaive) examined 2014 Internal Revenue Service data for Oakland, Wayne and Macomb Counties. All three experienced a net outflow of people, and the top two destination states were Florida and Texas, both of which have no income tax.

Lawmakers love to talk about how they’re “with the people” and “on your side.” If they choose to deliver hundreds of millions to a handful of politically well-connected developers while continuing to take an extra $700-plus million from regular people every year, those regular people can make up their own minds about those claims.


Related Articles:

Michigan House Rejects Cronyism Bills

Profiles in Courage in Defense of Taxpayers

What Happens When the Michigan Economic Development Corporation Ends?

Business Climate, Not Cronyism, Key to Michigan’s Future Growth

Subsidies Bad For Taxpayers

Tax Cuts and Corporate Welfare

February 17, 2017 MichiganVotes weekly roll call report

No bills of general interest were voted on by the full House or Senate this week, which is not unusual for this point in a new legislature. Appropriations committee members have been receiving detailed briefings on a proposed budget for the fiscal year that begins Oct. 1.

Legislative committees have been active however, and two made news this week by advancing the bills described below.

On Wednesday: The House Tax Policy Committee reported the following tax cut bill with the recommendation that it pass; Democrats all voted ‘no’ and Republicans all voted ‘yes’ except for Republicans Reps. Howrylak of Troy and Maturen of Portage, who both ‘passed’ on the bill.

Stay Engaged

Receive our weekly emails!

House Bill 4001: Reduce state income tax rate

To cut the state income tax from the current 4.25 percent to 3.9 percent starting in 2018, and then gradually phase out the tax over a 39 year period with annual cuts of 0.1 percent.

On Thursday: A Senate Economic Development and International Investment committee 'favorably' reported the following package of bills with a unanimous vote by both Republicans and Democrats:

Senate Bills 111, 112, 113 and 114: Transfer some state revenue to big developers

To authorize a new way of giving ongoing cash subsidies to particular developers and business owners selected by state and local political appointees. This would use the device of allowing a firm's owners to keep the state income tax payments they withhold from employee pay checks, and also let them keep sales and use tax they collect on retail purchases. The tax revenue not sent in to the state Treasury would be replaced by taxes and fees collected from other taxpayers. The Senate Fiscal Agency estimates the process could transfer up to $1.8 billion state tax dollars to developers over 20 years.

SOURCE:, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit


Related Articles:

Recently Introduced Bills of Interest

Elect Speaker of the House; Names of Senators

Votes on Electric Regulations, Asset Forfeiture, School Restraint Rules, More

December 2, 2016 MichiganVotes Weekly Roll Call Report

October 21, 2016 MichiganVotes Weekly Roll Call Report

October 14, 2016 MichiganVotes Weekly Roll Call Report

Time for Labor Unions to Collect their Own Dues

The on-going SEIU dues skim must end

Editor's Note: This piece was originally published by The Hill on February 7, 2017.

Pam Harris, an Illinois mom who made history as the lead plaintiff in a landmark U.S. Supreme Court case, has a simple message for President Donald Trump and Health and Human Services Secretary nominee Tom Price.

Stay Engaged

Receive our weekly emails!

“End the dues skim once and for all.”

Harris, who receives a modest monthly Medicaid stipend to care for her disabled son Josh at home, faced an attempt by the Service Employees International Union in 2009 to unionize private caregivers like her.

While she was able to beat back the Big Labor’s campaign to turn homes into union workplaces and then win right-to-work privileges for providers nationwide in her 2014 legal case, the work isn’t done.

Labor organizations — primarily the SEIU — still siphon an estimated $200 million in Medicaid funds from more than 500,000 care providers in several states, enlisting government as a payments processor.

The Trump administration and its congressional partners need to act decisively to end this scheme. In doing so, they can redirect precious dollars back to where they were originally intended to go and away from thinly veiled political machines.

How this came about in the first place is a notorious story — some would say a devious act — in labor creativity.

Facing a long decline in private sector unionism, SEIU sought to regain ground by organizing home help workers. These people were private contractors who could be labeled as government workers, though only for collective bargaining purposes, because they received money through a government-administered aid program.

SEIU entrapped workers any way it could, using executive orders in Illinois, a ballot initiative in Washington, legislation in Minnesota and administrative action in Michigan. Once in place, the union directly skimmed a portion of the Medicaid reimbursement for its own purposes, including legislative and political interests, lavish executive compensation and even Christmas parties.

The scheme didn’t go unchallenged. Bob and Pat Haynes, Michigan parents of two disabled children, decided to stand up to SEIU. The Legislature banned the practice but not before SEIU collected $34 million from tens of thousands of caregivers. After care providers in Michigan were given a choice, the membership of SEIU Healthcare Michigan dropped by 80 percent.

Pam Harris joined the fight and with help from the National Right to Work Legal Foundation, took her challenge all the way to the U.S. Supreme Court. But her legal victory didn’t end the scheme decisively; it only gave caregivers the option to get out.

Many have exercised that option, but others remain in the dark about their rights because unions often impose labor neutrality clauses on state administrators, forbidding them to tell caregivers what they can do. So it’s often up to informal parent networks and nonprofit groups to spread the word.

SEIU has worked hard to hold its ill-gotten gains. In Washington state, SEIU put up nearly $2 million for a ballot measure so nonprofit advocates, like those from the Freedom Foundation, couldn’t contact caregivers about their rights, under the guise of protecting seniors from identity theft. The initiative passed with 70 percent of the vote.

What should be done?

The dues skim operates in government programs run by the Centers for Medicare and Medicaid Services within the Department of Health and Human Services.

Once confirmed, Price should initiate a rule-making process to prohibit public agencies from spending federal funds to collect so-called dues or fees on behalf of labor organizations. Unions would no longer have the convenience of a government-collected dues deduction. Much like every other organization out there, they’d have to sell and administer the benefits of membership on their own time and dime.

Congress can augment this action by attaching an appropriations rider that prohibits Medicaid funds from being skimmed into union bank accounts.

If the experiences in Illinois, Michigan and other states are any guide, caregivers just want to take care of their clients and family members. No union – SEIU or otherwise – should be able to use the tools of government to put a hand in the cookie jar.


Related Articles:

Labor Union Caught in Dues Skim Fails to File Annual Report with Federal Government

SEIU Affiliate’s Revenue Cut in Half After 'Dues Skim' Ended

SEIU Sues Its Own Members for Banquet Hall They Paid For

Public School Union Members Protest Their Own Union

Washington Examiner Quotes Vernuccio

State Pension Funds Move To Risky Investments

Lack of payoff on investments is biggest driver of underfunding

The state’s pension fund lost $10 million by investing in a private development deal in Ann Arbor. A diversified pension system ought to make room for some risky investments, but system investors have doubled down on chasing high returns. explains what happened:

The Michigan Department of Treasury confirmed this week the State of Michigan Retirement Systems lost about half its original $20 million investment in the failed Broadway Village project with the recent sale of the property to a new development team that is planning an entirely new project now.

About a decade ago, the SMRS, which manages pensions for hundreds of thousands of public school employees, state workers, state police and judges, made a $20 million equity investment to become a limited partner in a $172 million redevelopment project on Broadway Street, in the area of Ann Arbor known as Lower Town, north of downtown across the Huron River.

Stay Engaged

Receive our weekly emails!

The project, officially known as Broadway Village at Lower Town, stalled soon after the developer finished demolishing the collection of shops that stood on the site, and the property, more than six acres, has sat vacant for several years now, surrounded by a chain-link fence, waiting for new investors to come along. It's been a sore point for residents who miss what used to be there.

"As the real estate market has improved, the general partner recently sold the property, resulting in a loss of approximately half the initial SMRS investment," Ron Leix, a spokesman for the treasury department, confirmed this week.

In 1997, only 6.4 percent of state investments were in real estate deals like this. It’s grown to over 10 percent today. Other high-risk investments in private equity deals have increased from 6.6 percent of total investments to 15.2 percent.

Further back in 1987, the state was partner to none of these type of investments. It was fully invested in traditional securities like stocks and bonds, with half of the book value of its investments in lower-risk, short-term investments, such as government and corporate bonds.

And just to note, when the school pension plan began 100 years ago, it invested exclusively in government bonds, mostly with local schools districts.

The increasing risk to state investments is not even including the rare times when pension funds get pledged towards political deals.

The failure to achieve the assumed investment returns has been the largest driver of the unfunded liabilities that have made government workers Michigan’s largest creditors. And as returns have been harder to come by, investment managers have shifted to riskier strategies. While this may generate higher returns, it is also likely to generate more of the losses that were seen in Ann Arbor.

Read more about state pension underfunding at


Related Articles:

Unions Fight their Members’ Interests on Pensions

The Lose-Lose Situation in Pension Funding

Don’t Blame Employees for Pension Underfunding

State Pays More as Community College Tuition Rises, Enrollment Falls

Fixing Michigan's Local Pension Problems

Testimony: When Will Michigan Families Get Some Tax Relief Too?

Spending interests get theirs, corporate welfare recipients rolling in taxpayer dollars

(Editor's note: The following is testimony presented to the Michigan House Tax Policy Committee by the Mackinac Center's Senior Legislative Analyst Jack McHugh on Feb. 15, 2017)

In 2007, Michigan’s Legislature approved a “temporary” income tax hike, from 3.9 percent to 4.35 percent. The rate was trimmed 0.1 percent in 2012 and made permanent.

Stay Engaged

Receive our weekly emails!

Since 2007 this higher tax hike has transferred $6.3 billion additional dollars from Michigan families to Lansing than would have been taken otherwise.

Last year, that tax hike deprived Michigan families of $771 million they had earned.

That tax hike will take an extra $771 million or more this year too, and every year until it’s rolled back or more.

What did the state do with that extra $771 million?

It’s a big number but still might have been swallowed by the $1 billion in secret corporate welfare checks this state wrote to special interests last year under MEGA subsidy deals approved in 2009. More income tax dollars were transferred under deals approved by Republicans. Now there are hearings on yet another $1.8 billion for a handful of big developers.

Media pundits, progressives, the Michigan League for Public Policy, “Bernistas” and other voices on the left exhibit horror at the idea of a modest tax cut that lets families keep a bit more of what they earn. Why then are they so quiet when it comes to transferring more money to politically favored special interests?

Isn’t it the turn of regular hardworking Michigan families and small businesses to get a better deal from Lansing too?

This state can afford it. Despite “tax cut fever” rhetoric, Lansing has hardly been on a rigorous spending “diet.” Annual appropriations have increased from $25.2 billion in 2010-11 to $31.0 billion this year. That’s $5.8 billion more to spend each year, and growing at a faster pace.

Looking at just the state’s two largest funds, the May 2016 revenue estimating conference projected general fund and school aid fund revenue of $22.5 billion this year. The January 2017 consensus upped that to $23.3 billion next year. That’s a $764.8 million increase.

The question may be not whether Lansing can afford to give back, but who you will give back to.

That 2007 tax hike damaged the state in other ways: It may have contributed to 49,000 former Michigan residents having left and taken their incomes permanently to some other state. That’s what the Mackinac Center’s Michael LaFaive and Ball State University scholar Michael Hicks found when they looked at emigration levels associated with income tax hikes.

For every 10 percent increase in personal taxes, they found an additional 4,900 people leave this state every year. And that’s even controlling for other reasons people move out of state, like more hours of sunshine.

Finally, Michigan’s big business tax and labor reforms have made it more economically competitive, but we’re lagging in vital tax burden metrics.

The most recent Tax Foundation report shows Michigan ranked 25th in state tax burdens.

Perhaps more immediately painful, 31 other states celebrated their own “Tax Freedom Days” before Michigan last year. Even Indiana and Ohio beat us out.

The economy won’t expand forever, and no one wants another generation having to watch their children leave the state for jobs. Michigan can’t afford not to make itself more competitive in relative tax burdens. Especially when competing against warm states like Florida and Texas that also have no income tax.

William McBride, the Tax Foundation’s chief economist, summed up the consensus of many empirical studies by academic economists on the relationship between taxes and economic growth:

“While there are a variety of methods and data sources, the results consistently point to significant negative effects of taxes on economic growth even after controlling for various other factors such as government spending, business cycle conditions, and monetary policy.”

Thank you.

Why Michigan Licensing Laws Are So Destructive

Everything you need to know about occupational regulations in the Great Lakes State

The state of Michigan licenses about 160 occupations while cities, like Detroit, require even more. Occupational licensing is the fees, educational coursework, training and exams that governments mandate before someone can legally perform certain jobs. Mackinac Center policy analyst Jarrett Skorup speaks about why licensing laws in the Great Lakes State are so destructive to consumers and the economy.  

Stay Engaged

Receive our weekly emails!


Related Articles:

Vet Saves Dog's Life, Family is Happy – State Sanctions Him

Michigan Can Do More On Occupational Licensing

How Occupational Licensing Redistributes Income

New White House Report Highlights Occupational Licensing Problems

A Federal Bill to Loosen Licensing Requirements

Happy Valentine’s Day from the Mackinac Center! You don't require a conviction to take possession of my heart, Valentine. (Read more here).

Unlike the MEDC and its corporate welfare, I can't keep it a secret any longer: I want you to be my Valentine. (Read more here).

Stay Engaged

Receive our weekly emails!

If you love someone, set them free like a Michigan public employee leaving their union. (Read more here).

My love for you is as deep as the underfunded liabilities in our state's pension system. (Read more here).

We appreciate our supporters. We don’t need any flowers or chocolates, but if you want to show your appreciation, you can do so at


Related Articles:

This Week in Fiscal Policy News

House Republican Policy Plan Lays the Groundwork for Action

The Spookiest Policy Ideas Threatening Michigan

Automatic Tax Increases are Not Good Policy

Mackinac Center Experts Available for Commentary on 2017 State of the State Address

Congress May Protect Private Pensions from State Bureaucrats

Recent regulations allow states to create and manage retirement for private employees

If you think states mismanage the pensions of their own employees, just wait until they get their hands on the retirement savings of private sector workers. Thankfully, Congress may undo an Obama-era regulation that could have removed safeguards for private pensions and forced some employers into government-run retirement accounts.

Two Republican members of the U.S. House, Tim Walberg of Michigan and Francis Rooney of Florida, have introduced bills to kill the idea through the seldom-used Congressional Review Act. Walberg chairs the House Subcommittee on Health, Employment, Labor, and Pensions.

The regulation, published August 2016 and amended in December, allows states and localities to “design and operate payroll deduction savings programs for private-sector employees, including programs that use automatic enrollment, without causing the states or private-sector employers to have established employee pension benefit plans under” federal law. The federal law in question, widely known as ERISA, gives pensioners a number of protections.

“Hardworking Americans could be forced into government-run plans with fewer protections and less control over their hard-earned savings,” Rooney noted in a press release. “Employers will face a confusing patchwork of rules, and many small businesses may forgo offering retirement plans altogether.”

Stay Engaged

Receive our weekly emails!

States such as California, Connecticut, Illinois, Maryland, and Oregon already, in the words of the regulation, “require certain employers that do not offer workplace savings arrangements to automatically deduct a specified amount of wages from their employees' paychecks unless the employee affirmatively chooses not to participate in the program.” In these states, employers “are also required to remit the payroll deductions to state-administered IRAs established for the employees.”

In short, the regulation would allow state and local governments to set up pension plans outside the scope of federal laws that impose a fiduciary duty on plans and require them to invest solely for the benefit of their participants. By bypassing federal protections that apply to existing plans, the Obama-era rule could lead to giant unregulated (by federal standards) funds for state governments, which could play politics with the retirement security of private sector employees. Even worse, many workers would be automatically signed up for these programs unless they affirmatively opt out.

Why is all this worrisome? Just look at one state where politicians are trying to get their hands on private sector pensions without the constraints of ERISA. I first noted this in a 2009 Competitive Enterprise Institute study titled “Your Retirement or Our Political Agenda: How Politicized Investment Strategies Threaten Workers’ Pensions.”

In 2000, then-California State Treasurer Philip Angelides launched his ‘Double Bottom Line’ initiative to adopt certain social and tobacco-free investment policies — including using the pension funds in CalPERS and CalSTRS for local economic investments. The divestment of tobacco was a costly mistake. CalSTRS revealed that its tobacco investment ban lost the plan $1 billion in gains, and in 2008 conceded that they ‘could no longer justify’ avoiding tobacco stocks.

California’s billion-dollar mistake was possible because the state pension fund for public employees was not subject to ERISA, letting Angelides make political statements with public employees’ retirement savings instead of investing solely for their benefit.

The political temptation goes beyond selecting investments, however. Public pension funds use their money to pressure companies and the government to advance political agendas. Again from the study:

In June 2009, 41 signatories representing some of the nation’s largest public pension funds and others with approximately $1.4 trillion in assets wrote to the Securities and Exchange Commission, asking the agency 'to improve disclosure of climate change-related risks, and material environmental, social and governance risks, in securities filings.’

These signatories included then-California State Treasurer Bill Lockyer, who served on the governing boards of the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). They wrote: “Pension funds protect workers’ retirement benefits, and they need to ensure their portfolios reflect the risks and benefits related to climate change.”

According to Andrew Biggs of the American Enterprise Institute, state and local government pensions are already underfunded by over $5 trillion. Some states now want access to private sector retirement money. To add insult to injury, they want the ability to automatically enroll private employees into these accounts without safeguards against using that money for politics.

Repealing the regulation will protect workers and stop state and local governments that wish to use money they control but do not own from dipping their hands into private sector retirement accounts.


Related Articles:

Unions Fight their Members’ Interests on Pensions

Fixing Michigan's Local Pension Problems

State Pension Funds Move To Risky Investments

House Republican Policy Plan Lays the Groundwork for Action

Pension Officials Mislead Lawmakers