The Office of Retirement Services’ Estimates

A recent unsigned, undated, unpublished memo from the Office of Retirement Services also explores costs from transitioning MPSERS to a defined-contribution retirement system. The paper reiterates the three types of costs listed by the SFA paper. These are:

  • The calculation that MSERS employer automatic- and matching-contributions exceed the MPSERS employer normal cost
  • Increased upfront cash requirements due to actuarial assumption changes
  • Relatively small administrative costs from setting up a new retirement system.[27]

There are a few key differences between this memo and the SFA report. There are slight differences in the annual employer service costs. Under the assumption that employees will mimic the contribution rates of employees in MSERS, the ORS paper reports that the defined-contribution plan would cost an extra $9 million in the first year, $20 million in the second, and $32 million in the third.[28] These annual costs increase as more employees enter the defined-contribution system after the defined-benefit system is closed. The ORS’ reported costs are $2 million more, $4 million less, and $6 million less than the figures in the SFA paper, respectively.[29]

Under the assumption that the employees would maximize the employer’s matching contributions, the ORS memo reports that the state’s costs would be $12 million more in the first year, $27 million in the second year, and $42 million in the third year.[30] These costs are $3 million more, $1 million less, and $3 million less than the SFA paper, respectively.[31]

Because the ORS paper is more recent and unfunded liabilities have grown since the SFA published its analysis in 2009, the ORS reports an increase in the cost of conforming to a closed system’s level-dollar schedule to catch up on MPSERS’ unfunded liabilities. The total first year costs are $360 million in the ORS report[32] — $152 million higher than the SFA paper.[33]

The SFA and ORS reports provide similar estimates on the costs of setting up a defined-contribution retirement plan; the numbers, at most $8 million to $10 million, are relatively small in comparison to the calculated increase in cost for the unfunded liabilities.[34]