The bill, approved by a 57-47 vote, would keep new teachers in a part defined-benefit, part defined-contribution pension system and offer the option of a 401(k)-style plan. The Senate was expected to take up the legislation later today.
Five Democrats abstained from voting, citing potential conflicts of interest because they are educators.
State Rep. Amanda Price, R-Park Township, said the legislation will save nearly $16 billion in debt and allow more funding to go directly to classrooms.
"Passage of today's legislation marks some of the most significant reforms we have made since I took office last year," Price said. "These changes allow schools to put more state funding directly into classrooms and will save a great deal of money for the state in the long-term, allowing the system to remain sustainable for years to come."
The measure calls for studying the financial impact on the state if the pension was ended, which was part of a proposal approved last month by the Senate and sought by many Republicans. State officials say ending the pension would require the state to set aside more money than expected from the school-aid fund.
Under the House bill, new public school hires would get a match of up to 2 percent plus a lump sum upon retirement to pay for health insurance. Retired employees covered by state-provided insurance would pay at least 20 percent of their premiums.
Democratic lawmakers echoed concerns raised by retired and current teachers, arguing that the changes erode promises of pensions and health care coverage in retirement. Many teachers already saw their personal pension contributions increased in 2007, and now will have to pay state income taxes on their pensions under legislation passed last year.
"We are breaking our promise we made to them," said Rep. Mark Meadows, D-East Lansing. "We can do better — way better. And we owe it to the people of this state and hard-working (public school employees)."
Republicans said the whole point of the legislation is to save the retirement system, adding that legacy costs are harming the Michigan Public School Employees Retirement System. The House measure also adds $130 million in state funding toward school employees' future retirement health care costs.
That funding, along with the 3 percent contributions school employees are required to make, would significantly decrease the retirement system's $45 billion unfunded liability.
"We're not attacking teachers. What we're trying to do is save the system," said Rep. Chuck Moss, R-Birmingham. "What we have here is a bill that will cap the liability, pay down the debt and play fair with employees. ... No, it's not perfect. We never claimed it was. But we have to fix it now."
— Tribune Web Editor Mark Brooky contributed to this report.