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:

Why the UAW Didn't Need to Hike Dues

Mackinac Center Research Featured in The Detroit News

Wage Hike Bad for Tipped Workers

Vernuccio Op-Ed in Detroit News

More Money for Roads Without Raising Taxes

Labor Policy Expert Cited on Union Decline

Stay Engaged

Simply enter your email below to receive our weekly email:

Facebook
Twitter

Public charter schools give parents more options. They provide options that may not be available in a traditional public school setting. ChoosingCharters.com tells the stories of parents and students who find value in public charter schools and how their lives have been improved with choice. Visit ChoosingCharters.com for more information.

Related Sites