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Midland — Pension managers who oversee Michigan’s school pension system testified Wednesday in a Michigan Senate committee that a reform bill lawmakers are considering would cost the state billions in upfront costs. Their analysis of Senate Bill 102 is inaccurate as the bills explicitly prohibit the state from incurring these added expenses, as they are entirely optional.
Legislators are considering offering new school employees 401(k)-style retirement plans instead of adding them to Michigan’s school employee pension system, which carries $26.7 billion of unfunded liabilities. The move would keep Michigan from making pension promises to future teachers that it may be unable to keep. But representatives of Michigan’s Office of Retirement Services misleadingly claimed in testimony that this would lead to massive “transition costs,” arguing that the state needs to follow so-called “best practices” of public pension finance.
ORS’s claims are false and should be disregarded. So-called “transition costs” had been the main objections to previous attempts to reform the pension system, so the legislation currently under consideration in the Senate was written to specifically prohibit the state from incurring these optional costs. ORS’s own testimony showed they had not taken that language into account and were instead analyzing previous versions of legislation no longer on the table.
Additionally, ORS’s sudden commitment to “best practices” flies in the face of the department’s repeated willingness to ignore prudent pension funding practices.
“ORS presides over a retirement system that has been underfunded for 33 of the past 34 years,” said James Hohman, assistant director of fiscal policy at the Mackinac Center. “They’ve used far-from-best practices to shortchange the dollars going into the system and their mismanagement has made retirees the largest creditors to the state.”
Additionally, examples of ORS’s failure to maintain or ignore other pension-funding “best practices” include:
ORS representatives claimed SB 102 would trigger five different additional costs and only one of those is legitimate. That additional cost comes from offering new employees benefits that would be more generous than are offered under the current "hybrid" retirement plan. The other costs are optional or prohibited by SB 102. It’s clear that ORS did not read, did not understand or did not tell the truth about the legislation.
“Lawmakers and workers who depend on state systems for their retirements should be outraged that ORS seems more interested in protecting the status quo and their jobs than accurately analyzing and representing the legislation under consideration,” Hohman added. “The current state of affairs is bad for teachers, bad for kids in schools being shortchanged by pension funding requirements and bad for taxpayers who are stuck with the bill.”
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About the Mackinac Center for Public Policy
The Mackinac Center for Public Policy is a nonpartisan research and educational institute dedicated to improving the quality of life for all Michigan residents by promoting sound solutions to state and local economic policy questions. As a free-market think tank, the Mackinac Center is guided by its belief in free markets, individual liberty, limited government and the rule of law. Founded in 1988, it is headquartered in Midland, Michigan. For more information, visit www.mackinac.org.
The Mackinac Center for Public Policy is a nonprofit research and educational institute that advances the principles of free markets and limited government. Through our research and education programs, we challenge government overreach and advocate for a free-market approach to public policy that frees people to realize their potential and dreams.
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