Retirement Matters
February 2024
Paid-Up Pensions — The significant news at this December’s State of Michigan Investment Board (SMIB) meeting was that, in 2023, Michigan paid off the pensions for the Michigan Public School Employees’ Retirement System (MPSERS) and their Other Post Employment Benefits (OPEB) like health insurance. Governor Whitmer recommended that the freed-up funding be spent on K-12 schools in the 2024 Executive Budget.
State Employees’ Retirement Systems Is Next — What’s important to you is that our Michigan State Employees’ Retirement System (MSERS) pensions are also likely to be included in a “pay off pension” plan beginning in 2024. It will take time, but Michigan State employee pensions could potentially be fully funded by 2031. In general, the report says that by paying off the pension liability for these two plans, it will free up a huge projected $3.8 billion that will become available for other State spending. The December 2023 SMIB report says:
“…approximately $1.2 billion in additional onetime contributions will be made throughout FY-2023, MPSERS OPEB is now fully funded and will now require approximately $700 million less in contributions, and as MPSERS and SERS pensions achieves fully funded status (estimated 50% probability to occur by 2031) an additional $3.8 billion of contributions will no longer be required.”
Pension Protection — Michigan has an incentive to pay for pensions because they are protected in the Michigan Constitution. Article IX, § 24 says, "The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby." By comparison, the retiree health care benefits don’t have the same protection, despite their importance as being life sustaining.
SERS Funded Ratio — The funded ratio measures how much of our SERS retiree benefits are paid up. It compares the dollars in the fund to the value of promised lifetime income benefits. A funded ratio below 100 percent, means that the plan has not saved enough. The actuarial value for SERS, pension only, funded ratio was 69.6 percent in fiscal 2022 according to the Michigan Bureau of Investments. This is based on $13,617 million in actuarial value of assets compared to $19,568 million in actuarial value of liability, as of December 31, 2023.
Prioritize SERS Pensions — It’s great news that Governor Whitmer’s goal is to fully fund State employee pensions. What’s concerning is that these freed-up funds, from paying off the State employee pension liability, are likely to be up for grabs to finance other State programs. That was the budget practice used when MPSERS funds were freed up and recommended to fund K-12 schools in 2024.
State Employee Investors — Some policymakers may see this as just another interchangeable shifting of fund sources, but they need to consider that State employee retirees are not just beneficiaries, but are also investors in SERS. Current State employees contribute 4 percent of their salary to the SERS pension fund along with contributions from the State employer and earnings on investments. Since employees are investors in SERS, shouldn’t they have preference when freed up funds are available from earnings on those investments?
Make SERS Pensioners Whole — The value of the State retiree’s pension has been diminished since 1987 when the State employee Cost of Living Adjustment (COLA) was capped at a mere $300 per year. When SERS freed up funds become available, they should be used first for COLA on State employee retiree pensions.
Editor’s note: Joanne Bump serves as feature columnist for “Retirement Matters.” Column content is time sensitive and is based on information as of 5/7/23. Joanne can be contacted by e-mail at joannebump@gmail.com.
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