After reading Rep. Chuck Moss's rebuttal to a spot-on editorial recently published in The Detroit News, a reader might conclude that the only problem with the school employee pension system is that it's underfunded. The $22.4 billion gap between the system's assets and liabilities is a symptom that exposes the real problem: politicians can't be trusted to properly fund a defined benefit pension system.

State politicians underfund the system in a couple of ways. They use overly optimistic assumptions about investment earnings and payroll growth. Overestimating these means that the state doesn't put in as much as it should.

Politicians also have ways to squirm out of making contributions at certain times. In 2007, when the stock market was booming, the state improperly "marked to market" the pension fund's assets. This was done exclusively so that legislators wouldn't have to put in as much money as they thought they would.

Stay Engaged

Receive our weekly emails!

The underfunding problem can only be fixed by gradually phasing out the defined-benefit pension system, which is done by closing it to new hires who instead get a defined-contribution 401(k)-type benefit.

A plan passed by the state Senate does this, but the House plan just perpetuates the problems.

The House did pass a couple of reforms that address Rep. Moss's concerns over “normal costs” and so-called transition costs. Senators can adopt those if they'd like, but compared to the Senate's reform they're just tweaks.

The only real solution is closing the system.


Related Articles:

Flint Shows Importance of Open Government

Time To Fix MPSERS Pension Problem

Ballot-Selfie Ban Stands In Way of Free Speech

Lawmakers Must Preserve Choice in DPS Bailout

Business Subsidies Won't Drive Growth

The Detroit News Points to Mackinac Center Research

Stay Engaged

Simply enter your email below to receive our weekly email:

Facebook
Twitter

A “bottlenecker” is someone who uses the power of the government to limit competition in the market and artificially boost their own profits. Bottleneckers use a variety of methods to achieve their goals, including tax loopholes, regulations, occupational licensing requirements, minimum wage laws and many more. The end result when these special interest bottleneckers succeed is fewer choices and higher prices for consumers, fewer job opportunities for workers and less innovation throughout the economy.

Related Sites