Posted on 06/05/2015 6:12:09 AM PDT by MichCapCon
Michigans closed state employee pension system got some good news this year: unfunded liabilities did not increase. But taxpayers are still on the hook for the $6.2 billion promised to retirees that the state has failed to save enough for.
A new valuation shows the systems liabilities grew roughly $500 million since the last report but so did the value of assets set aside to cover those liabilities. The state carries $16.2 billion in pension liabilities, and $10.0 billion of investments. Some of the systems previous assumptions have been updated to reflect actual experience, which added $400 million to the projected liabilities.
Retirement system managers adjust for variations in the market value of pension fund investments using a five-year average. This smoothing of reported numbers in turn keeps contribution rates from having large year-to-year fluctuations. Recent investment gains exceeded the 8 percent annual return the system assumes, so the (unsmoothed) market value of the pension funds current assets exceed their (smoothed) actuarial values by roughly $1 billion.
The not-bad news is a change from recent years. Unfunded liabilities increased from $1.8 billion in 2007 to $6.2 billion in 2012. They have remained at $6.2 billion since then.
Thankfully, nearly 20 years ago the pension system was closed to state employees hired on or after March 31, 1997. These employees are granted generous contributions to individual retirement savings plans that generate no long-term taxpayer liabilities. This has saved taxpayers from even larger unfunded liabilities, but the risk will not be fully extinguished until the last pension check is sent to the last surviving pre-1997 employee, many decades in the future.
That’s nothing. Sebelius managed to run ours up to $9 billion.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.