Pension Debt Soaring After Three Rounds of Reform Half-Measures

The Michigan Legislature has enacted three rounds of amendments to the underfunded school employee pension system, in 2008, 2010 and 2012. None did the one thing reformers say is guaranteed to contain and eventually eliminate the underfunding problem: closing the system to new employees, who would instead have contributions made to their own 401(k)-style accounts.

As independent experts warned each time, none of those tweaks prevented the system from accumulating ever-larger unfunded liabilities. In fact, the state-run school pension system’s unfunded liability has soared from $8.9 billion in 2008 to $26.7 billion in 2015.

Currently, the pension fund only has enough money to pay off 60.5 percent of its total pension claims in the future. The growing burden of having to catch up on the system’s unfunded liabilities has been called a “budget killer” for school districts.

For example, Plymouth-Canton Community Schools paid $24.1 million into the system in 2016, up from $15.1 million in 2009. The $9 million increase could have covered adding 137 experienced teachers at the district's average salary of $65,586.

In 2012, the Michigan Senate voted to address the core problem by closing the school pension system to new employees, which would contain and eventually wind down the liabilities. The House did not follow through, and the changes the state ending up enacting mitigated but did not end the still growing liabilities.