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School Pension System Impacts Everyone’s Future
Michigan Capitol Confidential ^ | 4/21/2012 | James Hohman

Posted on 04/27/2012 11:54:41 AM PDT by MichCapCon

For every 17 Michigan residents, one person is collecting or will collect generous retirement benefits from the school pension system, including comprehensive health insurance and monthly annuity payments. Proposed reforms to the system — or alternatively just doing nothing — will have a substantial impact on the future of every person who lives here.

There are 445,316 current and former school employees in this enormously expensive system. The cost projected by state officials to prefund a year’s worth of pension benefits for still-active employees was $875.9 million in 2010. Employees kicked-in around 60 percent of this, and taxpayers the rest.

That’s only part of the cost, however, and it’s probably understated. If the state’s payments on prefunding were accurate, then the state would not have an unfunded liability. An additional $1.3 billion must be paid annually because the state ran up $17.6 billion in unfunded liabilities.

And all that just applies to the annuity portion of the benefits. The system also provides health insurance to retirees, and practically nothing has been set aside to cover these expenses, which are disbursed on a “pay as you go” basis. Currently, $794 million annually comes out of taxpayers’ pockets to pay these expenses.

As mentioned, state legislators are considering some major reforms to the system. Among these, new hires would no longer be promised post-retirement health insurance coverage, and instead would be offered a “defined-contribution” health savings account. (They will also all be eligible for Medicare at age 65.)

These reforms will go a long way to fixing the problem, although another generation must pass before all the employees receiving the unfunded health insurance benefits retire and eventually expire, as we all do.

The bill does not, however, fix the problem in pension benefits. The state is still on the hook to develop further substantial unfunded liabilities — the largest factor in pension contributions. The bill does not address reasons why unfunded liabilities occur; it simply shifts the responsibility between employees and employers.

Nor does the bill eliminate the unavoidable political risk inherent in government pension systems: the temptation for politicians to promise higher benefits when cash is flush and defer paying for them when it is not.

At a minimum, the state should close the “defined-benefit” system to new employees (as was done for new state employees starting back in 1997), and instead simply offer these workers 401(k)-style benefits. Among other things this would phase out the temptation for politicians to underfund its promises while offering workers benefits more in line with today’s marketplace.

The enormous school employee pension system is a large part of why Michigan government employee benefits are so far out of line with those received by workers in the private sector — $5.7 billion out of line, as of 2009. Closing the school pension system is essential to getting those benefits back in balance.

TOPICS: Education; Government
KEYWORDS: pension

1 posted on 04/27/2012 11:54:44 AM PDT by MichCapCon
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To: MichCapCon

It’s should get interesting when screams and threats heard from the bloated government employees, are heard coast to coast.

2 posted on 04/27/2012 12:04:14 PM PDT by dragnet2 (Diversion and evasion are tools of deceit)
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To: MichCapCon

Public education employees are very dependent on property taxes and federal funding.

3 posted on 04/27/2012 1:03:46 PM PDT by familyop (We Baby Boomers are croaking in an avalanche of rotten politics smelled around the planet.)
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To: MichCapCon


4 posted on 04/27/2012 1:08:33 PM PDT by PGalt
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To: MichCapCon

“The bill does not address reasons why unfunded liabilities occur...”

Socialism/progressivism/agenda-driven totalitarianism

Our Educational Philosophy...

5 posted on 04/27/2012 1:12:33 PM PDT by PGalt
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To: MichCapCon

DEFUND socialist collectives, foreign and and forever. Start with any 100 you can think of.

“Now, legal plunder can be committed in an infinite number of ways. Thus we have an infinite number of plans for organizing it: tariffs, protection, benefits, subsidies, encouragements, progressive taxation, public schools, guaranteed jobs, guaranteed profits, minimum wages, a right to relief, a right to the tools of labor, free credit, and so on, and so on. All these plans as a whole — with their common aim of legal plunder — constitute socialism.” - Frederic Bastiat 1801-1850

How much damage has socialism done? Here’s part of it...

6 posted on 04/27/2012 1:18:58 PM PDT by PGalt
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To: All taxation, PUBLIC SCHOOLS, guaranteed jobs,...

(and he didn’t even

7 posted on 04/27/2012 1:23:30 PM PDT by PGalt
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To: PGalt

One in 17 means one in four families of four. That means a family of four is responsible for one quarter of the benefits for life should they chose to retire early. Not at 65 and climbing like the rest of us. Early so they can enjoy the fruits of our labor while they are young. Early when we are working harder and harder just to get our retirements funded while paying for theirs. Early while they are stealing the money we could be setting aside for our kids education. The education that is required because they are no longer taught in public schools.

Our schools are failing here in Michigan and they want more and more. I will not go down that road with out screaming my head off. I home school because the public schools in Michigan are terrible. And they just want more and more and more.

I better stop before I get banned.

8 posted on 04/27/2012 1:44:49 PM PDT by jimpick
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