Michigan public pensions

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Michigan public pensions include six pension systems managed under Michigan's Office of Retirement Services state pension system.

Michigan has 186,890 total public employees as of 2010.^[1] In Fiscal Year 2010, the state has a total of 333,642 active and inactive pension fund members, with 268,728 receiving periodic benefit payments. ^[2]

Michigan shifted its state public employees (not teachers) to a defined contribution plan in 1997 which encompassed approximately half of the state workforce in 2009, with the rest in defined benefit plans. In the defined contribution plan, state employees receive a minimum 4% state contribution toward their retirement fund. If an employee elects to contribute more, the state will match that percentage (up to 3%).^[3] Employees may invest income in a tax-deferred retirement investment program. The state offers two optional deferred compensation plans, the 457 and 401(k). Employees decide the amount you want deducted from your paycheck.^[3]

The state wants workers to pay 3% of their monthly salary toward a trust that would fund retiree health-care benefits, whereas they had previously paid nothing.^[4] The employee contributions would generate $300 million of the more than $920 million in health-care costs projected for FY2012.^[4] Three unions filed suit against the state, claiming that the policy is an unlawful violation of the terms of their employment.^[4] The new contributions have been collected by the teachers' retirement fund since July 1, 2010, but are being held pending a court decision and should the state lose the lawsuit, contributions would likely be returned to employees.^[4]

A recent study by economists Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx of the University of Chicago Booth School of Business concluded that the Michigan pension fund will run out of money in 2023.^[5]

According to the United States Census Bureau, the state has 132 locally-administered pension systems.^[6]

FY2012 budget: early retirement plan

Jennifer Granholm's 2010 state budget proposal included a plan to entice state workers to retire early.^[7] The state work retirement proposal could prove to be one of the toughest proposals to sell, particularly in the Democratic-run House.^[7] Under the plan, employees on the job would have to contribute more, starting at an increase of 1% in the plan's first year, rising to 3% in five years.^[7] For those eligible to retire, the plan sweetens pension benefits and for employees not yet eligible to retire but who meet certain age or years-of-service requirements also could get better pension benefits. Pfficials estimate that roughly 3,500 to more than 6,000 of the 12,000 eligible might retire if offered the deal.^[7]

If the bill is not passed, the state is going to have to cut funding for police and other emergency services.^[8]

Michigan pension plans

Public School Employee Retirement System

The Michigan Public School Employees Retirement System collects and compiles employee wage, contribution, and service information from 550 K-12 districts, 59 public school academies, 7 universities, 28 community colleges, 57 intermediate school districts, and 11 libraries.

State Employees Retirement System

The system has two plans, the Defined Benefit plan and the 401(k) Defined Contribution plan. State employees hired on or after March 31, 1997, are enrolled in the 401(k) Defined Contribution plan. The system covers Civil Service employees as well as appointed officials in the Executive branch and employees of the Legislature and Judiciary.

State Police Retirement System

The Michigan State Police Retirement System is a defined benefit plan.The plan is funded by contributions from the Michigan State Police and by investment earnings on these contributions.Full retirement is achieved after 25 years of service.

Judges Retirement System

ORS administers two different retirement plans for judicial employees - the Defined Benefit plan and the 401(k) Defined Contribution plan. Employees hired prior to March 31, 1997 pay into the Defined Benefit Plan and those after pay into the Defined Contribution Plan. Members of the Defined Contribution Plan receive a 4 percent gross pay contribution by the state. In addition, participants can contribute their own money to the plan. The first 3 percent participant contribution is matched by the state with another 3 percent.

Funding levels

The state's pension liabilities can be calculated in a variety of ways, which yield different numbers. Below are the numbers as calculated by to the Pew Center on the States^[9], the American Enterprise Institute^[10] and Professors Robert Novy-Marx of the University of Chicago and Joshua Rauh of Northwestern University, Kellogg Graduate School of Management.^[11]

Other information from the Pew Center on the States Feb. 2010 publication "The Trillion Dollar Gap":

This data is based on projected data from 2008 census data.^[13] In 2008, $1.94 trillion was set aside for pensions, but it is estimated that states have $5.17 trillion in unfunded liabilities.

Research conducted by State Budget Solutions shows the extent to which the state has funded or underfunded its Annual Required Contribution:^[14]

Pensioners' income

The Senate Fiscal Agency said that the state spent approximately $925 million on retirement costs in FY2010, about 2 percent of the state's $45.7 billion budget. The amount that retirees received varied widely, with more than one third of Michigan's 244,356 state retirees collecting less than $10,000 a year in pension income, and roughly two-thirds of retirees collecting less than $20,000 and 49 retirees collecting more than $100,000.^[15]

Rate of return

Michigan presumes an 8 percent return rate on its pension investments.^[12]

Retiree health benefits

Michigan officials have said that retiree health obligations account for one-seventh of the state’s payroll costs.^[16]

Taxation of benefits

Michigan is one of four states that exempt most or all public and private pension income from taxation.^[17] Not taxing benefits as income is costs the state approximately $1 billion a year.^[17]

Starting Jan. 1, 2012, the state will begin taxing retirement income as income, generating an estimated $230 million annually for the state budget. The tax has been challenged and is now before the Michigan Supreme Court, which has heard arguments on the law's constitutionality.^[15]

Local public pensions

Main article: Local government public pensions

According to the United States Census Bureau, the state has 132 locally-administered pension systems.^[6]

Wayne County faces a bill of more than $600 million in 2012 to cover the deficits in a county pension plan. The most recent audit shows Wayne's pension plan has only 60% of the cash it will need to cover projected monthly checks for retirees during the next 30 years. This is the lowest percentage for a major public-employee pension plan in Michigan in 2012.^[18]

The Detroit Pension Fund has reported losses of $480 million between 2008-2010. Recently, the pension fund came under scrutiny for spending $30 million renovating a building which is worth $1 million.^[19]

Pension reforms

2013

Some Republicans have joined with Democrats to repeal some of the pension reform measures passed by Gov. Snyder, saying they don't like the way the tax is hitting seniors. A bill was filed in the state senate to repeal the pension tax. Retirees born before 1946 aren't affected by the change. Those born between 1946 and 1952 are exempt up to $20,000 for single filers with income less than $75,000 and $40,000 for couples with income less than $150,000; they also lose senior citizen exemptions for interest, dividends and capital gains income. Taxpayers born after 1952 — 59 or younger — are not eligible for any exemptions outside of Social Security, railroad pensions and military pensions. ^[20]

2012

Republicans in the state Senate voted to close the public-school employee retirement program to newly hired teachers and move them into a 401(k)-style plan. The plan would also require that current workers contribute at least 5 percent of salary to their traditional pension. However, the state House, also controlled by the GOP, dropped the Senate reform in favor of some useful patches that will reduce future liabilities and create an optional 401(k)-style plan. New teachers would be able to choose between a fixed pension and the 401(k)-type plan, which means keeping the gateway to the bankrupt pension system open. The combined pension and health-care unfunded liabilities for its 450,000 education employees and retirees is close to $50 billion. Teachers can retire at age 55 (and in some cases earlier) with full benefits and take another job. The average retiree pays only 10% of health-care premiums, and teachers hired before 1990 contribute almost nothing to pensions. ^[21]

Pension protests

Gov. Rick Snyder's proposed budget includes a plan to tax retirement pensions, which he says will generate $900 million in revenue. ^[22] The state is facing a $1.4 billion shortfall. Snyder's proposal in on unsure footing in the state Senate as some of the Republican majority are opposed to the idea. ^[23]

Litigation

A 2011 lawsuit, General Retirement System of Detroit v. the State of Michigan, is challenging whether the Local Government and School District Fiscal Accountability Act may constitutionally and unilaterally require the municipal government to transfer the assets of the local retirement system to another retirement system for any reason under certain circumstances. The case is pending in U.S. District Court Eastern District of Michigan Southern Division.

An Ingham County judge ruled unconstitutional a law forcing 19,000 veteran state workers to pay 4 percent of their annual salary to maintain their pensions. Ingham County Circuit Judge Joyce Draganchuk said Public Act 264 violates the Michigan Civil Service Commission's authority to set pay and benefits for classified state employees. Starting April 1, about 20,000 state workers hired before March 31, 1997, had to choose between contributing 4 percent of their pay to the state pension fund or have their pension benefit frozen and be forced into a defined contribution retirement plan. A 2010 law signed by former Gov. Jennifer Granholm that took 3 percent from state employee paychecks to fund retiree health care also was found unconstitutional. ^[24]

Wayne County

In Wayne County] pension officials are investigating whether the lucrative pension plans crafted by county executive Robert Ficano's violated federal rules. Also at question is if some retirees will have to repay the system. A law firm has been retained by pension officials to investigate whether some deals violated Internal Revenue Service rules limiting annual payouts, contributions to pensions and the purchase of service time, according to reports. Ficano opened a defined benefit pension plan to county employees that guaranteed a monthly payout based on years of service and pay in late 2008 in exchange for wage and health care concessions. Many employees used their county-matched 401(k) funds to buy into the guaranteed pension.^[25]

According to reports the pension plan crafted by Ficano last year waived an age limit of 55 for retirees and allowed them to buy at a discount as many as six of 20 years to qualify for a pension. IRS rules appear to limit purchasing time to five years.^[25]

A June 2012 report found that only 50 percent of the Wayne County pension plan was funded. The system needs approximately $800 million to be considered fully funded. ^[26]

Most county employees have an average pension of $22,373. However, a review by The News of about a dozen Ficano appointee retirements since 2009 found: ^[26]

• Former personnel director Tim Taylor crafted the buyout plan and may have benefited the most. When he retired last year, he used a lump-sum payout of 24 weeks' pay — an estimated $60,000 — to boost his final pension to $118,000 per year. He was the only county employee to use the perk.
• Joan Brophy, an economic development staffer, retired in 2009 at age 48 to a $44,000 annual pension. Shortly after, she was hired back on a contract at $82,500 a year.
• A top county attorney and Ficano adviser, William Wolfson, retired at age 50 in 2009 with a $124,000 annual pension after 11 years with the county. He also was rehired on contract — $54,000 last year — and could draw a separate pension from his time with the city of Detroit.
• Fred Berry, a former deputy, used the buyout to retire in 2011 after 27 years of service. He was rehired under a $65,000 a year contract in the county's Homeland Security and Emergency Management Department and occasionally is Ficano's chauffeur. He was allowed to accelerate his pension payments: the first nine years he'll draw $101,000 a year, but then it drops to about $39,000.

In addition to the generous pension payouts, the system also took some big hits through investment losses. Since 2007 the fund, which was at its peak at $1 billion, has lost $300 million. The plan's funding level has declined every year since County Executive Ficano took office in 2003. ^[27]

Transparency

Main articles: Public pension disclosure and Governmental Accounting Standards Board

Data availability

Michigan provides Comprehensive Annual Financial Reports on all four systems.^[28] Since a 2005 ruling, the names of recipients and amounts disbursed have been available to the public.^[29]

Senate Bill 797, signed into law by Governor Snyder in December 2012, exempts "information regarding the calculation of actual or estimated retirement benefits for members of the system" from the Michigan Freedom of Information Act.^[30]

Fund performance data

Fund performance data is available in the CAFRs for each system.^[31]

Rate of return

Michigan assumes an 8 percent return rate for all pension funds.^{[32] [33][34][35]}

Unfunded liabilities

Does the fund disclose the amount of unfunded liabilities? Michigan's four pension funds, when the overfunded Judges' Retirement System is included, totals $22.077 billion of unfunded liabilities.^{[36][37][38][39]}

Oversight

A State Integrity Investigation report gave Michigan an "F" for state pension fund management.^[40] State law requires public disclosure of annual reports and audits of the pension system, but lacks rules governing conflicts of interest of pension fund managers.^[41]

See also

• Public pensions
• Michigan state budget
• Michigan state government salary

External links

• Office of Retirement Services
• Pension payouts are public records, Reporters Committee for Freedom of the Press, December 22, 2005
• Michigan State Pension Fund Management - State Integrity Investigation

References

	v • d • e State of Michigan Lansing (capital)
Transparency	Freedom of Information Act | Transparency Checklist | Government corruption reports | Transparency Legislation | Open Records procedures | Transparency Advocates | Transparency blogs | State budget | Taxpayer-funded lobbying associations |
Divisions	State | List of Counties | List of Cities | List of School Districts | Evaluation of county websites | Evaluation of city websites | Evaluation of school district websites |
Government	Michigan State Constitution | Executive | House of Representatives | Senate |
Judiciary	Michigan Supreme Court | Supreme Court Elections | Court of Appeals | First Circuit Court of Appeals | Second Circuit Court of Appeals | Third Circuit Court of Appeals | Fourth Circuit Court of Appeals | List of Michigan Circuit Courts | Judicial Nominating Commission | Judicial news | Judicial activist organizations |
Ballot Measures	2008 ballot measures | Michigan ballot measures by year, from 1914-2008 | School bond measures | Procedures for qualifying an initiative | Amending the constitution | History of direct democracy | Campaign finance requirements |