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MEA-Retired Board Watches MPSERS Board Meetings

Jan 17, 2019

MPSERS Board Observer Report – by Jim Pearson, MEA-Retired liaison

Part of being retired is that occasional thought, “I wonder how my pension system is doing?” On behalf of MEA-Retired, I attend every meeting of the MPSERS Board to keep in touch with that. What follows is my interpretation of the answer to that question and a web link to a source you may examine if you wish to see the details.

In round numbers, the MPSERS Funding Ratio in 1983 was a reasonably healthy 71.6%. In 2010 the Ratio had only dropped to 71.1% as the Great Recession started to erode investment returns. By 2016 it had dropped to 59.7%. For years MPSERS had an assumed annual investment return of 8%. The Bureau of Investments, Michigan Department of Treasury managed (in my opinion, heroically) to average an over 6% return during the 2006-2016 decade. So, the Ratio as of last December has climbed to 66.9%.

Looking ahead, there are a couple of things to keep in mind. The US has been in a robust market period for quite a few years and a market downturn is a when, not if. On the upside, if the MI Treasury Department can get us through the Great Recession, no worries with respect to ordinary recessions. But….there is a new factor of which we should be aware.

We had a census in 2010. New voting districts were subsequently drawn by the majority party in Michigan. The districts were severely gerrymandered such that that party obtained an iron grip on the Michigan government. Ideologically opposed to pensions, they mostly discontinued traditional pensions for new school employees in Michigan. Problem was that a pension depends on new hires to fund the plan and appreciates that retirees do not require income forever. The problem was where to get money coming in until the current pensioners are gone (2030’s to the 2050’s).

Part of the solution was to collect UAAL funds from school districts (Unfunded Actuarial Accrued Liability). Consequently, the employer calculated contribution to the retirement system has risen from 6% of payroll (2008) to 30% (2017). This dramatic increase in cost to districts, plus the end of traditional pensions for new employees, has much to do with the current shortage of teachers, school bus drivers, and many other school positions. Pay has been cut or been stagnant. Worse, the UAAL funds are paid to the districts as part of the annual, per student Foundation Allowance and a few weeks later a portion of these must be returned to the state – commonly known as a shell game. Significant money is being taken out of the classroom.

In sum, school funding in Michigan is reaching crisis levels and we should take care who we send to lead in all three branches of government. A school problem could become our problem. ..then select “Board Information,” then select “Special Reports.” Look at “2017 Investment Report.” For another opinion and more detail look at “2017 Pension Valuation Report.”