Michigan’s major government pension funds are underfunded and will require billions for the foreseeable future just to begin catching up. But some argue that multiple years of solid investment growth will eliminate this problem. While nothing would alleviate pension problems like a few years of solid returns, it is unlikely that such sufficient growth will occur.

A report from consultants R.V. Kuhns and Associates looks at the possibility that the state will return to full funding with investment growth. Currently, the state assumes that it will get an 8 percent return on the money it sets aside to pay for pensions (though a small percentage of the teachers' fund assumes a 7 percent return). The state, however, has received on average 5.5 percent to 5.7 percent since 1997. This is one of the main reasons why the state government's pension system for public school employees is underfunded by $17.6 billion. In order to catch up on liabilities, the report shows that returns would need to average 11.7 percent to 12.7 percent for the next decade.

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The report also uses a series of assumptions about investment performance. Only under the rosiest of scenarios will the funds return to full strength by 2020, a “75th percentile” event (see report for more details).

The state can ensure that it has enough money to pay for retirement benefits already earned by closing its pension fund to new members. This contains the increase in unfunded liabilities while offering new employees affordable retirement benefits.


See also:

Analysis: State Behind on School Employee Pension Reform

Study: State Employee Pension Reform Has Saved Taxpayers Estimated $2.3 Billion to $4.3 Billion in Unfunded Pension Liability

School Pension Reform Stalls in Senate

Inconvenient Truths Disappear Down Government ‘Memory Holes’

Analysis: Gutted School Pension 'Reform' Could Come Back to Bite Schools

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Detroit Prep is a top-rated and economically and racially diverse charter school in the city. It's growth means it needs to move out from a church basement and into a new location. Nearby is a former Detroit Public Schools building, sitting empty for years. But, worried about competition, the public school district refused to sell. For years, district and local government officials in Detroit had worked to block public charter schools. They pushed legislation at the Michigan Capitol to hinder them, refused to sell to them, transferred surplus buildings from the district to the city government and imposed deed restrictions on property sales to private developers. All of it was aimed to hinder or even prevent charter school choice outside the confines of the Detroit school district.

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