News Story

Michigan Teacher Pension Costs Increase To Nearly $1 Billion Per Year

The unfunded liabilities for the state teacher pension system are driving current cost increases.

What started out as a $155 million tab in 2012 for public school employee pension and retirement health care costs will increase to $945 million by 2015, according to the Senate Fiscal Agency.

The driver of the escalating costs is MPSERS' unfunded liability. The pension system's unfunded liability was $25.8 billion in 2013, up from $24.3 billion in 2012. The state's payments also go to defray retiree health care costs. 

The costs for the Michigan Public School Employees Retirement System includes the $882.7 million the state is projecting to spend on retirement contributions for K-12 education in 2015 plus the costs for community colleges, libraries and higher education. 

One reason the costs are increasing is that school districts didn't meet the annual required contributions for pension costs, said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy. In 2013, the state determined the cost was $1.9 billion, but districts paid $1.36 billion, according to state's 2013 annual audit.

Also, Hohman said that for years the Legislature has used "gimmicks" to get out of paying the full upfront costs of MPSERS.

For example, in 2007 the Legislature voted to mark assets to market rates, which allowed legislators to put less money into the pension system. In 2010, the state Legislature approved an early retirement incentive that saved $169 million on salaries but added an additional $1 billion in unfunded liabilities to MPSERS. Then, in 2012, the Legislature doubled the time the state has to pay off the early retirement incentive costs from the traditional five years to 10 years.

Hohman said that has led to a "catastrophic debt in the pension system that is sending our current legislators scrambling to find payments."

Leon Drolet, chairman of the Michigan Taxpayers Alliance, said government is good at finding a way to put off paying costs.

"Any tough decision that government can put off, it does put off," Drolet said. "If there is a way to kick the can down the road, they are brilliant at it. It always catches up with them. And the taxpayers pay for it."

(Editor's note: This story has been slightly edited since its original posting. Retiree health care is part of the escalating cost the state pays.)


See also:

Michigan Teacher Pension System Liabilities Increase Again

How Michigan Can Fix Its Pension Problems

Pension Costs Mean Tighter Budgets For Classrooms, Taxpayers

Commentary: Shifting School Employees To a 401(k) Is the Most Important Thing

Teacher Pension System Hole Getting Deeper

School Board Member: Close Teacher Pension System