Michigan School Pension Fund Liability Grows to $26.5 Billion

The unfunded liability of the Michigan public school pension system increased from $25.8 billion to $26.5 billion from 2013 to 2014, according to an actuarial report released in May. The system's growing costs have been called a “budget killer” and are taking an increasing amount from the funding Michigan devotes to schools.

The state has agreed in recent years to essentially pick up increases in the cost of the school pension system. These payments have risen from $155 million in 2012 to $796 million in 2015, according to the Senate Fiscal Agency.

Democratic politicians and union representatives have claimed that increased state payments are taking money away from the classroom, although the cost of the system is the same either way, with the money ultimately all coming from the same source: taxpayers. The claim also presumes that expenses for teacher fringe benefit should be excluded from what are considered "classroom costs."

Meanwhile, the retirement system's growing costs affect every school district in the state.

For example, Ann Arbor Public Schools is currently embroiled in contract dispute with its teachers union. Both the union and the school board have filed unfair labor practice complaints against the other as the current contract nears expiration.

The state’s payments to Ann Arbor Public Schools to cover employees' pension costs has increased from $2.2 million in 2011-12 to $10.9 million in 2014-15, according to the Michigan Department of Education.

“Michigan is struggling to pay for massive unfunded liabilities for school employees,” said James Hohman, the assistant director of fiscal policy for the Mackinac Center for Public Policy. “Neither teachers nor taxpayers benefit from promising pension benefits and paying for them later. This is a risk that needs to be contained by closing the system.”

Unlike new state employees and many new local government employees, new teachers are still entering the pension system.

Sen. Phil Pavlov, R-St. Clair Township, has introduced Senate Bill 102 that would close the Michigan Public School Employees' Retirement System defined-benefit plan to new school employees hired starting July 1 and instead replace it with a 401(k)-type pension plan. That plan would make it impossible for the state to rack up additional unfunded liabilities.

MPSERS has 204,512 retirees and beneficiaries receiving payments. The average annual pension is $21,667. There are 199,674 current employees enrolled in MPSERS.