News Story

Michigan Universities Also Socked by Massively Underfunded School Pensions

Seven of 15 state schools affected; 20 percent of Ferris State’s budget goes to pensions

Michigan’s public school districts are not the only educational institutions grappling with the financial burdens of a massively underfunded pension system. Seven of the state’s 15 public universities are also having to pay large sums to catch up on the public school system’s debt, which since just 2009 has risen from $12.0 billion to $29.1 billion.

The schools are paying these costs even though no new university employees have been enrolled in the Michigan Public School Employees Retirement System since 1995. But all those who were hired before then remained in the pension system and continue to accrue pension credits from it.

If the state run pension system were fully funded this would not be a problem, because the universities would only have to contribute enough each year to pay for another year’s worth of pension credits earned by each covered employee. But because it is not fully funded, universities must also contribute toward catching up on years of past underfunding. This means the small number of employees still covered by the old system account for a disproportionate amount of the schools’ payroll costs.

According to Michigan Technological University Vice President Ellen Horsch, roughly 250 of MTU’s current 1,300 employees are covered by the traditional pension system.

Michigan Tech spent an average of $28,607 for each employee in MPSERS, of which $17,513 goes towards the underfunding in the system between July 1, 2014, and June 30, 2016, according to data provided by the university.

“The fact that we got out of this system is helpful, because we have that light at the end of the tunnel in 2038 [when MTU’s unfunded liabilities are projected to be met],” Horsch added. But she also said that MTU and the other universities in the system still need financial relief from the burdens it imposes.

Michigan Tech is joined by Central Michigan University, Eastern Michigan University, Ferris State University, Lake Superior State University, Northern Michigan University and Western Michigan University. All are stuck with unfunded liability costs that make the benefits provided to their employees hired before the 1996 law much more costly.

MTU estimates that having 250 employees still in the traditional pension system commonly known as MPSERS means it was assessed more than $3.4 million in unfunded liability costs between July 1, 2014, and June 30, 2016. Over the same period, Central Michigan University was assessed upward of $7.8 million in these costs. In total, the seven universities were required to pay $33.4 million in unfunded liability costs.

Clarification: The MPSERS employee costs for Michigan Tech was calculated by the Mackinac Center with data provided by the university.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.