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March 28, 2012

Forum: Unfunded legacy costs are huge

By Sen. Howard Walker ----

When we think about the problems our state is facing, we think about unemployment and our economy, the condition of our roads, the amount of crime in our towns and the level of taxes we assess our job providers and citizens.

While all those are vitally important issues, we also need to look at the tremendous amount of unfunded legacy costs the state and its subdivisions are staring at, and the numbers are huge.

The state recently addressed one of its largest legacy costs, namely retiree health care for state employees. However, there are huge problems in the other systems that are in existence, and the largest of those is the Michigan Public School Employees Retirement System (MPSERS). The unfunded liabilities in MPSERS are staggering. Current numbers provided to the Legislature by the Office of Retirement Services (ORS) show MPSERS is underfunded to the tune of $45 billion. Of that number, approximately $18 billion is for pension costs and the other nearly $28 billion is for retiree health care.

MPSERS is the state's "defined benefit" retirement plan mainly for retirees of our local school districts and community colleges. A defined benefit plan provides a guaranteed level of benefits upon retirement. Besides pension benefits, MPSERS also provides school retirees with health care benefits.

Most school employees hired before 1990 pay nothing toward these benefits and those hired between 1990 and 2008 only pay 4 percent of their gross salary while the rest of their liability is paid for by the taxpayers through local school district budgets.

This year, the rate school districts are charged for MPSERS will be nearly 25 percent. This is calculated on the salaries of current school district employees, so for every dollar a school district pays for an employee's salary, it is paying an additional 25 cents to cover pension and retiree healthcare costs.

According to the Senate Fiscal Agency, school districts spent $1.85 billion last year to pay for pension and retiree health benefits — that equates to $1,200 per pupil. Without any changes, this number will be even higher in the years to come.

This problem cannot be ignored. Reform will accomplish a healthier system, ensuring it is around for current and future retirees, and it will provide school districts with needed savings so additional dollars will get into the classroom. Doing nothing would be irresponsible and abdicate our fiduciary duty to the taxpayers.

The reforms that were announced last week are not being proposed to penalize anyone, quite the contrary. We want a healthy and sound retirement system for future generations of educators and school employees; without reform, school districts will continue to struggle to pay the inordinate costs of a system that is on very shaky ground.

The reforms are well thought out, fair, provide savings for school districts and help to ensure the health of the Michigan Public School Employees Retirement System and they deserve to be implemented.

About the author: Howard Walker is a Republican state senator from Traverse City.

About the forum: The forum is a periodic column of opinion written by Record-Eagle readers in their areas of interest or expertise. Submissions of 500 words or less may be made by e-mailing letters@record-eagle.com. Please include biographical information and a photo.

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