Fixing the Michigan Public School Retirement System

Michigan's Capitol Building  

by Governor Rick Snyder
July 23, 2012
If you and your family kept on spending and piling up debt without any plan to pay for it, you'd find yourself in a heap load of trouble. But that's just what the State of Michigan has been doing when it comes to funding retirement for our public school teachers -- and our students are paying the price.

Last week, the legislature and I met to consider some reforms to our system. Though we weren't able to reach an agreement, we're awfully close, and I look forward to working with them to get this done for the benefit of our schools and school employees.

At the center of the debate in Lansing is the Michigan Public School Retirement System. (It's known by the acronym "MPSERS," for short.) Today, MPSERS is a pay-as-you-go system, meaning that current employees are paying for the benefits of current retirees. The trouble is, with more people retiring than there are working -- and with a higher cost of health care -- MPSERS has amassed a $45 billion unfunded liability with no plan to pay for it. What's worse is that the figure keeps growing with each passing year.

Lansing's failure to solve the problem has a serious side effect. Payments to fund MPSERS come from our schools. And for every additional dollar schools have to pay into the system, that's a dollar that is pulled out of the classroom and away from teaching students. Today, the rates school districts pay for employee retirement costs are 24.5 percent of total payroll, slated to be 27.5 percent in 2013, and are projected to reach 35 percent by 2016 if significant reforms are not achieved. Compare that to 2002 when the rate was 12.2 only percent.

What's all that mean in dollars and cents? The increase from 12.2 percent to 35 percent means districts would be facing nearly $2 billion in additional costs in 2016 when compared to 2002. That equates to an additional drain of approximately $1,300 per-pupil from the classrooms by 2016 if reforms are not quickly and responsibly adopted. As this problem was allowed to drag on, our kids have been shortchanged.
Reasons for reforming MPSERS are the same as the reasons for reforms that have already been made to the State Employee Retirement System (SERS).  Like MPSERS, SERS was on an unsustainable path for the future and needed reforms were made to get SERS back on stable footing for the future. Reforms made to SERS produced an immediate reduction to the state's retiree health liabilities of more than $5 billion and put the system on the path to future solvency.
The importance of solving the liabilities problem cannot be understated. Every state is facing massive liabilities in the funding of their retirement systems, and with these reforms, Michigan has taken a giant step forward in solving one of the biggest problems being faced across the nation. Together, we will continue to work together on MPSERS and solve its funding problem once and for all.

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