Testimony: Legislation in Michigan Would Expand Retirement Income Options for State Employees
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Testimony: Legislation in Michigan Would Expand Retirement Income Options for State Employees

HB 4733 and 4734 would enhance a public employee’s ability to secure guaranteed lifetime income via annuity products.

Testimony before the Michigan House Appropriations Committee, May 12, 2021. 

The bills before you today are consistent with Michigan’s history of improving the primary defined contribution (DC) retirement plans first offered to state employees back in 1997, and then subsequently expanded to teachers and other public-school employees in the last few years. Since the retirement plan’s creation in 1997, the state has added auto-escalation features and introduced contribution minimums and defaults which are all important design features to secure the goal of lifetime income for Michigan retirees.

HB 4733 and 4734 would further that goal by enhancing a public employee’s ability to secure guaranteed lifetime income—meaning income guaranteed to last throughout retirement—via annuity products. Many assume that members in a defined contribution plan only have the option to take lump-sum distributions of their benefits at retirement, but this is inaccurate. Some states have begun the process of bringing in the annuitization process to the retirement system itself.

While most other states tend to offer annuities strictly at the date of retirement, these bills take the goal of lifetime income a step further by offering the purchase of an annuity to active members as well. This can have a rather large and positive impact on member benefits in retirement. Other states and private employer offerings lock in a member’s ability to purchase an annuity to their retirement date, putting a large amount of interest rate risk on those employees. If a member were to retire during a low interest rate environment (like today), they would be taking a rather large reduction to their annuity benefit compared to someone who retired when interest rates were higher.

By offering annuities during the active stage of an employee’s career, those rates can be smoothed out, hedging risk by likely catching some of the higher interest rate environments of the past and possible future.

In conclusion, the bills before you continue to build on Michigan’s positive changes to its state retirement systems. The ongoing work to improve the resiliency and sustainability of these systems over the last few decades has demonstrated a model that other states should follow to keep their pension plans solvent and their benefits adequate to ensure lifetime income for retirees.

Thank you for your time, Mr. Chairman and members. I would be happy to take any questions from the Committee.

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