(The Center Square) – Efforts to reform Michigan’s pension system for public school employees may take decades to show results, according to one expert.
Michigan Public School Employees’ Retirement System liability continues to grow despite past attempts at pension reforms.
The state did pension reform in 2010, 2012 and 2017.
In 2017 after the third reform effort, MPSERS net pension liability was $26.5 billion. In 2022, it rose to $37.9 billion.
“While it may appear on the surface that unfunded liabilities have not diminished since the last several years of MPSERS reform, that would be a inaccurate impression,” said Leonard Gilroy, vice president of government reform with the Reason Foundation, in an email to The Center Square. “Turnaround reforms like these tend to take about a decade to start showing up in the topline financial reporting given the nature and complexity of pension math. Importantly, a number of the MPSERS reforms exposed the true extent of the underfunding issue, revealing more pension debt than previously recognized. And on a bipartisan basis the legislature and executive offices put in vastly improved funding policies to start effectively paying off that pension debt faster.”
“So while it may appear that pension debt is holding fairly steady, that’s masking a lot of changes under the hood that have shifted the trajectory of MPSERS and put it on a realistic path to solvency over the next couple of decades,” Gilroy said.
Many Michigan schools will have their first day of school Sept. 5. Pension costs have been a big cost for more than a decade. The state’s Office of the Auditor General reviewed the retirement system’s liability in July.
One of the schools in the pension system is Livonia Public Schools. The schools pension payments have increased by $4.9 million from 2015 to 2022, that increase in costs in 2022 alone is enough to pay the average salary of more than 64 teachers within the district.
For years, the state didn’t make enough contributions to cover the full costs of their pensions that led to the growing liability.
However, the state made overpayments to the pension system in 2021 and 2022. The state’s recommended contribution was $2.96 billion in 2021 and it made a contribution of $3.08 billion. In 2022, the state’s recommended contribution was $3.18 billion and it paid $3.84 billion.
Laura Wotruba, spokeswoman for the MPSERS pension system, said pension liabilities can vary greatly from year to year based on factors such as assumed rate of return on investments.
Wotruba said in 2021, the pension system’s market rate of return was 27.20%, while in 2022 it was -4.67%. Wotruba said the pension system uses a “smoothing” effect of 6% to account for the year-to-year fluctuations.
