News Story

Teacher Pension Fund’s Good Earnings Last Year Not Good Enough

Still $16 billion short of amount needed to meet pension promises to school employees

Former Michigan Education Association President Iris Salters receives state pension benefits worth $190,600 a year. Salters gets far more than regular public school retirees thanks to the 1999 deal she brokered with the school district that once employed her. Under it, the earnings used to calculate her pension include the $186,000 annual salary she received from the private union.

Salters was one of many union officials who have such arrangements, and their pension spiking came at the expense of a severely underfunded public school pension system.

The school employee pension system had net earnings of $15.895 billion on its investments in 2021, compared to investment gains of $2.920 billion in 2020. That allowed it to reduce the amount needed to be fully funded from $35.0 billion to $24.2 billion in one year, according to the the system’s annual report.

But pension contribution expenses still impose a major burden on local school district budgets.

For example, Ann Arbor Public Schools contributed $13.2 million to the school pension system in 2011. Ten years later, its required contributions had more than tripled to $45.1 million. To put that in context, the $32 million in additional expenses each year would be enough to give each of the 1,529 full-time teachers and administrators in the district a $21,000 bonus.

State lawmakers made reforms to the system in 2010, 2012 and 2017 in efforts to address underfunding. The law passed in 2017 largely solved the problem by enrolling new employees in either a defined contribution savings plan, or a modified defined benefit plan that limits the impact of any future underfunding.

This year state lawmakers are considering proposals to boost the still-underfunded school employee pension system with a $2.85 billion infusion of new money. That includes a $1.7 billion payment directly to the pension fund, which the Michigan Association of Secondary School Principals compared to making an extra mortgage payment.

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.