Though Michigan’s pension fund is only the 18th-largest in U.S., that doesn’t stop it from offering its employees an array of retirement plans from which to select. The state of Michigan’s Office of Retirement Services (ORS) administers a variety of retirement programs that serve eligible employees. These include closed defined benefit (DB) plans, open DB plans, defined contribution (DC) plans, hybrid plans and deferred compensation plans. When it comes to funding, the system’s DB plan funding comes from both member and employer contributions and investment earnings. All plans, however, come with death and disability benefits, life and health insurance and long-term care insurance. If you don’t want to navigate the complexities of the Michigan retirement system alone, consider using SmartAsset’s advisor matching tool to get paired with a financial advisor.
Types of Retirement Systems in Michigan
Michigan offers an extensive range of retirement systems for its public employees. Specifically, the state provides 11 different programs. The prerequisites for each vary. One of the key advantages of the state’s tax system, however, is that it doesn’t tax Social Security. Furthermore, different systems entail different position and eligibility requirements. So you’ll want to pay close attention to the details of each.
55 years of age or older; and have served a minimum of 19 years, 6 months, and 1 day of active National Guard service in the State Defense Forces and the Michigan National Guard.
|Michigan Retirement Systems|
|Plan Title||Eligible Employees|
|Public School Employees Retirement System: Defined Benefit (DB) Plan||– Employees who first worked for a Michigan public school before July 1, 2010. |
– Employees who chose not to switch to the defined contribution (DC) plan under the 2012 reform (P.A.300).
|Public School Employees Retirement System: Pension Plus Plan||-Employees who initially worked for a Michigan public school between July 1, 2010 and September 3, 2012 and did not choose the defined contribution plan under the reform (P.A.300) of 2012. |
-Employees who first worked for a Michigan public school between September 4, 2012 and January 31, 2018 and did not choose a defined contribution plan.
|Public School Employees Retirement System: Pension Plus 2 Plan||– Employees who first worked for a Michigan public school on or after February 1, 2018 and chose the Pension Plus 2 pan.|
|Public School Employees Retirement System: Defined Contribution (DC) Plan|| |
-Employees who first worked for a Michigan public school on or after September 4, 2012 and chose the DC plan.
|State Employees Retirement System: Defined Benefit (DB) Plan||-Employees hired before March 31, 1997 who elected the DB Classified plan under P.A. 264 of 2011 -Employees hired before March 31, 1997 who chose the DB 30 plan under P.A. 264 and have not yet reached 30 years of service.|
|State Employees Retirement System: Defined Contribution (DC) Plan||-Employees who were newly hired by the State of Michigan on or after March 31, 1997. |
-Employees who began their state employment under the DB plan and transferred to the D.C. plan under P.A. 487 of 1996.
|State Police Retirement System:Defined Benefit (DB) Plan||– Enlisted officers who completed recruit school and subscribed to the constitutional oath of office before June of 2012.|
|State Police Retirement System:Pension Plus Plan||-Officers who first worked for the Michigan State Police on or after June 10, 2012.|
|Judges Retirement System:Defined Benefit (DB) Plan||-Judicial employees who were hired before March 31, 1997. |
-Judicial employees who are members of the Defined Benefit Contribution plan unless they elected to transfer to the 401(k) Defined Contribution Plan during the open enrollment window (1/2/98 through 4/30/98).
|Judges Retirement System:Defined Contribution (DC) Plan||-Judicial employees who are newly elected or appointed on or after March 31, 1997.|
|Military Retirement Provision||-Those who served in the Michigan National Guard who are separated from service;|
Overview of Michigan’s Retirement Systems
Public School Employees Retirement System: Defined Benefit (DB) Plan – Eligible employees for this plan receive both health and disability benefits. Offered under the DB plan are also two additional plans: The Member Investment Plan (MIP) and the Basic Plan.
Public School Employees Retirement System: Pension Plus Plan – The Pension Plus plan essentially offers both DB and DC plans for employees who meet the eligibility requirements. While it’s ultimately up to you to qualify for the plan, it’s also up to your employer to contribute to it.
Public School Employees Retirement System: Pension Plus 2 Plan – The Pension Plus 2 plan also combines retirement income with a retirement investment account. In addition, the plan offers eligible employees disability and death benefits. One of the key factors that distinguishes the plan from the Pension plus plan is its eligibility requirements.
Public School Employees Retirement System: Defined Contribution (DC) Plan – It’s important to note the benefits that come with this particular plan. Among those are the 401(k) and 457 investment accounts as well as a Personal HealthCare Fund.
State Employees Retirement System: Defined Benefit (DB) Plan – Offered under the DB plan are also the DB Classified, DB 30 and DB/DC Blend plans. Eligible members work for the State of Michigan or one of its “noncentral agencies.” In addition, though judges, public school employees, state legislators and state police officers also work under the state, they all have separate retirement systems.
State Employees Retirement System: Defined Contribution (DC) Plan – Michigan’s DC plan offers eligible employees a choice between 401(k) and 457(b) retirement savings plans. The website also features a comprehensive “Plan Resources” section that helps users distinguish between the services offered by each system.
State Police Retirement System: Defined Benefit (DB) Plan – With Michigan’s State Police Retirement System also comes two types of retirement plans: The DB Plan and the Pension Plus plan. As of September 2016, the system covered 3,018 beneficiaries and retirees and 1,688 active customers.
State Police Retirement System: Pension Plus Plan – The Pension Plus plan also functions as a component of the State Police Retirement System. In addition, it comes with two subcomponents: the Pension Component and the Savings Component. The Pension Component guarantees eligible employees lifetime pension if they meet age and service requirements. The Savings Component, however, enrolls members in a tax-deferred savings account so they can build their retirement savings.
Judges Retirement System: Defined Benefit (DB) Plan – Functioning as the first component of the Judges Retirement System, the DB plan serves judicial employees hired before March 31, 1997. In addition, the plan offers a disability pension for those who become mentally or physically disabled while serving in judicial office.
Judges Retirement System: Defined Contribution (DC) Plan – The DC plan differs from the previous component primarily in the appointment dates required for a judge to be considered eligible. In other words, judges for the DB plan are eligible if hired before March 31, 1997. Judicial employees for the DC plan, however, can become members if they were hired on or after that date.
Military Retirement Provision – In addition to the previously listed service requirements in the chart, the plan offers its members an annual compensation of $600. Members can secure compensation beginning at age 55 years old or on the effective date of application. Specifically, the retirement benefit only comes after individuals submit a written application (Retirement Application R0941D).
Retirement Taxes in Michigan
The money you contribute to your pension plan is tax-advantaged. Therefore, you can able to benefit fully from an account that bypasses all taxes. However, you pay federal income tax on any payments or distributions you receive from your pension. This tax requirement can be fulfilled through two ways: you can withhold these taxes from each check or you can make an estimated tax payment.
For the estimated tax option, you’ll have to make the calculations and pay them on a quarterly basis. You can also hire a professional to help with the tax estimates. Withholding, on the other hand, can potentially reduce the amount you pay in taxes at the end of the year. In addition, it’s important to remember that factors, like exemptions, ultimately affect how much is withheld from each check.
Furthermore, it’s important to note that some retirement plans include rollovers. A rollover basically gives you an out to paying federal taxes on your pension plan. In other words, you won’t have to pay taxes on your distributions if you do a rollover to an alternate, qualified retirement account. However, you’ll need to pay income tax if you choose to make any withdrawals on the money you transferred. Roth IRAs, however, function as after-tax accounts, so you’ll have to pay your taxes up front.
Michigan is one of the most tax-friendly states for retirees. This is mainly because it doesn’t tax Social Security and provides deductions for other forms of retirement income. In addition, these deductions are for retirement investment accounts and pensions. However, the deductions a retiree can receive depends on their age.
For instance, if you’re 80 years old with an annual 401(k) income of $25,000 and at least $10,000 from a pension, you can claim the deduction of that combined income.
Current Financial Health of the Michigan Retirement System
At an estimated value of $74 billion, Michigan’s ORS provides one of the most beneficial public pension systems in the U.S. In addition, it serves more than 530,000 customers, all of which are either employees, judges, state police or National Guard members. Out of that amount, 227,000 are active and 281,500 are retired. What’s more, Michigan’s ORS represents one of every 14 Michigan adults.
Beyond its Social Security tax exemption, Michigan’s ORS has also sustained some notable accomplishments. In 2017, it earned the 2017 Standards Award from the Public Pension Coordinating Councils Standards Program (PPCC) for both its administration and funding efforts. It also received another award, in the same year, for its DC plans’ performance. But besides its accolades, Michigan’s retirees have significantly improved the state’s economy. For instance, every dollar paid out in pension benefits supported $1.42 in Michigan’s total economic activity. In addition, each dollar Michigan taxpayers contributed to its retirement plans supported $5.68 in total economic activity.
Tips for a Successful Retirement
- Saving for retirement is vital. But it’s also important to preserve that savings by finding out the best location for you to spend your retirement. The state in which you choose to retire could either make or break your financial future. SmartAsset analyzed each state’s taxes to determine the most tax-friendly states in the U.S.. So when you make your final decision, you’ll want to make sure your location’s tax system aligns with your financial goals.
- Sometimes planning for retirement, as well as meeting a particular plan’s eligibility requirements, can be complex. However, the professional advising of a financial advisor can significantly ease this process. SmartAsset’s financial advisor matching tool can help you find the most suitable financial advisor in your area.
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