State on Required Payments for School Employees' Pension: 'The Check is in the Mail'

For the past few years, public school administrators, officials and Democratic politicians have complained of alleged school budget “cuts.” Although spending has actually gone up, an ever-larger share of the state's education budget is being consumed by growing shortfalls in the school employee pension system.

Nevertheless, only twice in the past 10 years has the state of Michigan met the "annual required contribution" that the pension system's own accountants say is needed each year to eventually close the underfunding gap, given assumptions about the future growth of its resources.

Specifically, net contributions fell short by $2.2 billion from 2005 to 2014, including a combined $1.08 billion in 2013 and 2014 alone, according to the annual audited financial statements. The system's overall unfunded liability grew by $8.2 billion from 2010 to 2014, and now stands at nearly $26 billion. In 2014, the “annual required contribution” was pegged at $2.1 billion. Instead, the state contributed just $1.6 billion. The required payments are based on estimates of how much is needed to cover another year's worth of service credits for each employee, plus an extra amount to “catch up” on, or amortize, the unfunded liability past underfunding has allowed to accumulate.

“I have found it interesting that the state of Michigan owns this retirement system and controls all aspects of it and yet the unfunded debt is passed onto the School Aid Fund,” said Michael Sharrow, the superintendent at Midland Public Schools. “I do believe the corrections made over the last several years will result in the long run in a healthier retirement system, but in the short term more needs to be done.”

Republican majorities in the Legislature enacted some reforms in 2010 and 2012, including requiring that employees make larger contributions toward their retirement benefits. Despite the reforms, the system's unfunded liability grew from $17.6 billion in 2010 to $25.8 billion in 2014.

“Setting aside any thoughts about 'is the program sustainable,' the reality is they have this system. People are relying on that for their retirement,” said Kyle Olson, founder of the Education Action Group, a nonprofit based in Muskegon that promotes education reform. “They should be making the payments. That’s their obligation. It is a real disservice to public employees if they are expecting that and the state is not funding it.”

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See also:

Fixing Michigan's Budget-Killing School Employees' Pension Up in the Air

10 Facts About Pension Systems in Michigan

Close MPSERS to Stretch Dollars Further

Pension Costs Mean Tighter Budgets for Classrooms, Taxpayers

Advocates of More Education Spending Ignoring Billions In Other Funds

The $2 Billion Education Funding Myth

Reality Check: Michigan Public Schools Getting More Money For Fewer Students

Michigan Schools Never Saw a $1 Billion Cut

Despite Fewer Students, Michigan School Funding Going Up, Up, Up

Michigan School Districts In Perpetual 'Funding Crisis'

Commentary: Shifting School Employees To a 401(k) Is the Most Important Thing