Michigan School Pension Deficits Eat District Budgets

Michigan’s state-run public school retirement system promises traditional retirement benefits in the form of annual pensions to employees hired before February 2016. Most newer hires get employer contributions to 401(k)-type retirement savings accounts.

Meanwhile, statewide enrollment in public schools has been falling, which means at many districts there are fewer teachers and support staff on the payroll than in past years. But as many school districts are learning, fewer employees does not translate into lower expenses for retirement benefits.

The Lansing School District illustrates this point.

Even as enrollment and staff numbers have fallen significantly, the cost of unfunded pension obligations owed to employees hired before February 2016 is on the rise.

“Pension debt hurts teachers and taxpayers alike,” says James Hohman of Mackinac Center for Public Policy. “It drains resources for classrooms today into paying the debts on yesterday’s services. While lawmakers have done a lot stop future pension debts, they also got deep into the red before doing so, and districts are paying the price for it.”

The Lansing school district employs fewer people because it also enrolls fewer students: 10,498 in 2020, or a 22% decline from the 13,465 who attended in 2011. The number of employees also fell, from 1,537 full-time positions in 2011 to 1,226 in 2020, a 20% decrease.

But even with the smaller payroll, the district’s annual required contributions to the state-run pension system increased from $17.3 million in 2011 to $21.1 million in 2020, a 22% increase. The increase came even though since February 2016 no new hires have been enrolled in the old defined-benefit pension system that is responsible for soaring state taxpayer-funded expenses.

Lansing’s cumulative debt to the Michigan Public School Employees Retirement System has also grown. In 2014, its share of the state’s pension obligations was $197,731,925. In 2019, it had grown to $235,804,289, a 19% increase.

Why? State leaders and pension managers failed for decades to properly fund the post-retirement benefit promises the school pension system promised. The underfunding eventually led lawmakers to close the system to new hires starting in 2016, but the financial hole dug by years of failing to contribute enough to cover the benefit promises — which is still occurring — remains and is even getting deeper.