Public pensions are a major source of fiscal pressure for state and local governments in Michigan and across the country. Michigan has made extensive reforms to reduce the cost of pension benefits for current employees and to more responsibly fund pensions going forward. Among other reforms, the State closed its legacy pension plans for school employees (Michigan Public School Employees Retirement System, or MPSERS, Basic and MIP plans) that are responsible for all of the unfunded
liabilities in the MPSERS system. The remaining hybrid pension system (MPSERS Pension Plus) is fully funded at this time.
The Macomb County superintendents commissioned Anderson Economic Group to perform an analysis on the effects of three pension reform bills under consideration in the Michigan Senate: Senate Bills 102, 1177,and 1178 (SB 102, SB 1177, and SB 1178). These bills would close the MPSERS hybrid pension plan to all new public school employees in Michigan, and place those employees into a defined contribution plan. They would also encode in law continuation of the amortization period that has been used since 1996, and set a separate amortization period for any future increases due to changes in the assumed return on investment in the plan.
In the following memorandum, we touch on three areas in particular:
- Recent efforts to reform MPSERS and how these efforts have affected the cost of pensions.
- The potential effect of SB 102, SB 1177, and SB 1178 on school district pension contributions.
- A look at the consequences of a hypothetical scenario in which the amortization period for the MPSERS unfunded liability is extended considerably. We evaluate how this hypothetical scenario would effect State and school district funding, balance sheets, and credit ratings.