News Story

Schools Feeling Short-Term Pension Pain For Long-Term Gain

One catch: Some benefits of a 2017 reform will take years to pay off a lot

Walled Lake Consolidated Schools illustrates the challenges Michigan’s conventional public school districts face with increased pension costs.

The district has seen the payments it must make to the Michigan Public Schools Employees Retirement System more than double over the past 10 years, even after adjusting for inflation.

In 2009 the district paid $9.8 million to MPSERS, or the equivalent of $11.7 million in 2019 dollars. Its 2019 pension payment was $25.5 million. By comparison, the district’s entire general fund budget was $156.8 million in 2019.

This is happening despite recent reforms to the pension system, and in the short term, to some extent because of them.

The system’s actuarial accountants indicate that as of 2019, the state-run pension fund was $33.8 billion short of the amount it should hold to be sure of meeting the promises it has made to most public school employees hired before February 2018. That $33.8 billion unfunded liability was the highest-ever reached, according to research dating back to 1971.

The current deficit is $3.1 billion higher than the previous year’s $30.7 billion unfunded liability. Much of this is due to the state adopting more realistic projections of how much pension fund investments are likely to return in future decades. The projection has been lowered from a compound annual return of 7.05% to 6.80%.

This change was part of the same 2017 school pension reform that made a defined contribution 401(k) pension plan the default for all school employees hired after January 2018. 

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.