Posted on 03/02/2015 7:21:41 AM PST by MichCapCon
Michigan House Republicans recently released a reform agenda that calls for closing the state-run school employee retirement system to new employees. Senate Majority Leader Arlan Meekhof, R-West Olive, reiterated the proposal.
The necessity of closing the current defined-benefit pension system and instead offering new employees a defined-contribution plan is simple: the state underfunds pensions.
According to the legislative auditor general, the system has been underfunded in all but one of the past 30 years. The system carries a $25.8 billion unfunded liability. Michigan taxpayers are now on the hook for 13 times more in unfunded school pension liabilities than the total amount secured by the faith and credit of the state taxpayer.
Not surprisingly, the underfunding caused the cost of the system to skyrocket. Retirement benefits now consume 34.54 percent of school payroll. Reports show that to eliminate the current unfunded liability the state would have to pay “catch up costs” starting at $1.9 billion per year and rising for the next 23 years. Even these large costs assume that benefits will not be further underfunded.
The system obviously puts taxpayers at risk, but future school retirees have the most to lose. Under the current system their economic security depends on the state continuing to make multi-billion dollar contributions over the next generation – a duty it has failed to adequately perform over the past generation.
Most of what is said by officials and politicians opposed to closing the current system are distractions that ignore the basic underfunding problem.
For example, it is claimed that a defined-contribution system would “cost more” than defined-benefit pensions. But if the state underfunds the current system, then the cost comparisons between the “normal cost” of defined-benefit plans (not counting catch up costs) and the employer costs for defined-contribution plans give misleading results.
Other questions raised about the system's influence on attracting quality employees, how to address “transition costs,” and market volatility are also important but miss the reason that pensions need to be reformed. Policymakers need to acknowledge the main problem of the pension system and be sure that they contain its ability to develop further unfunded liabilities. House Republicans and the Senate majority leader are right to make this a priority.
For more information, please see:mackinac.org/pension
That's a stunning number, at least to me.
Bump for marty
There ARE state teacher pension defined-benefit programs out there that are viable and sustainable. It requires a level of stewardship that evades most in states that have corrupt governments that filters down to the pension systems that administer their retirement funds. It’s as simple as that.
Unfortunately, that concept of STOP has been directed to weirdos and muslims and the STOP factor is .... hmmm .... let's change the ROE (military, civilian, political and judiciary) to mean something like ... a bullet stops a lunatic.
The concept of STOP
Anyway, politics cannot STOP and if it could ... it would take about a generation, pretty much what the writer recognizes
As a school board member, I see and understand the problem of more money being demanded by less input to the system which HAS to break at some point (the coming financial haulocost ?)
Somewhere along the line ... the natural order of things WILL just STOP because they're irretrievably broken .... but we can at least TRY to stop these things before that calamity.
Long, long overdue. Needs to happen at EVERY level of government.
Not to worry they will add to the gas tax to fund it. And the sales tax, and the property tax, and the income tax, and the internet sales tax, and the ......
I’d love to see this happen in Pennsylvania. It’s certainly a dead deal for at least 4 years with Comrade Wolf in charge. Corbett blew an opportunity to do something like this 4 years ago. In fact, that coward blew a lot of opportunities, but what’s done is done.
Property taxes are what fund most of our schools like most places. As a result, our property taxes, especially in the teaching mecca of Western PA are astronomical.
A lot of my liberal friends started singing a different political tune as we all started to buy homes in our late 20s / early 30s ... never did they imagine that they had to pay $400 - $500 a month to their benevolent education centers to rent their own property.
The ones that remain clueless are the ones that think the bank is raping them on their mortgage (i.e. the have the bank handle property tax payments). There are also those that are perennial basement dwellers that think taxes need raised “for the children”.
The effects of Michigan’s possible migration to a more realistic retirement plan won’t be felt for a while. There’s still too much crap clogged up in the pipeline and politicians will exploit the “no effect” of the better retirement plan. Still, plans like this need to be implemented in all states as retirement payments are getting way out of hand with the ridiculous contracts that are in place. You certainly can’t screw over the people that made an agreement with the state over the years (a deal is a deal no matter the dubious conditions those agreements were made).
I think a better plan is to start putting people into the 401K-like system right away. Those that have been around a while will get most of their retirement from their pension. Those that are new or have fewer years will transition to the new plan while leaving their pension dollars in the current system.
The unions, of course, are going to raise holy hell over this since they won’t be able to play with retirement money. I’m sure their ‘financial experts’ rake in a ton of cash managing these pension funds. What’s frustrating is that when they fail (and they always fail), they need taxpayers to bail them out. Anyway, since these funds will go to a 401K-like plan, only the plan holder can touch it. That’s a loss of a lot of extorted money for these buffoons. They aren’t going to roll over and play dead as this bill progresses through Michigan’s state government.
Retirement benefits now consume 34.54 percent of school payroll.
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That’s a stunning number, at least to me.
Yes it is.
Viable and sustainable, perhaps, but not desirable or advisable.
What???? And expect them to fund their own 401(k) plans like regular people?
BUMP!
It depends on whether the teachers contribute enough to amass a fund that can be responsibly invested. Granted, it does also depend on the amount the given state government has to contribute on behalf of the employee, but a responsible administration of these types of systems CAN work. In the case of responsibility well met, I don’t see why it is ‘not desirable or advisable.’
But I can see your point, especially in a state controlled by Democrats and hamstrung by unions. They’d much rather saddle the poor taxpayer with the leavings of their largess to useless leeches than actually serve their state citizens.
Every state is different and I just read a report on my state’s current situation. Public pensions are bad for all, even the employees. My dad was a teacher and in his first year the school offered new teachers the choice between investing in TRA or investing elsewhere. He chose to invest the portion of the salary that is deducted for retirement investments elsewhere. That choice was available for that year only. His non public pension account yielded a much higher return than his co-workers who chose TRA.
Also, with TRA your retirement funds go back into TRA for others when you die. If you could take that money and invest it for yourself, that money can be passed on to your children/grandchildren when you die.
It’s a retirement system that is somewhat of a pyramid scheme, younger teachers are funding the retirement of older teachers trusting that there will be enough teachers working to fund the accounts once they retire.
Investing in that system is required, and it a significant contribution.
“Responsibility well met,” is the fly in the ointment...and why so many governments are in such financial arrears. Defined benefit plans are on the way out in the private sector because they are unaffordable.
The TRS in my state is doing very well. I can’t say for yours.
Hmmm, that does ring a bell. Where else have I heard of such a scheme? Imagine if a country offered such a retirement scheme to its citizens, but then those younger citizens couldn't get jobs, or if their jobs didn't pay well enough to fund the older citizens who were ready for retirement. That would be bad.
Whoa!!!!
I know this because I took a relatively early retirement (I like my health so decided to keep it) and it's modest.
As long as teachers are hired because they have those worthless Education degrees there will be no quality in their ranks.
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