The plan, to be announced today by a bipartisan group of lawmakers, would save schools statewide nearly $411 million next year and $1.7 billion over 10 years, according to the Michigan Education Association.But how will the this affect the pension fund for public employees? How much of an increase would it take to entice 9,000 teachers to take the bump?
The proposed change would increase monthly benefits by about a third, according to the MEA. The average monthly increase would be about $500.$500 per month for 9,000 retirees = $4.5million per month. For a LONG time. 30 years of teaching when one starts at say 24 years of age would make many of these retirees only 54 years old (some even younger). There will be plenty of years left for these former teachers to collect these pensions. And herein lies the problem. What is the state of the pension fund right now? You can get that info from the Michigan Department of Management and Budget Office of Retirement Services blah, blah, blah. Just hit the link here. You can get financial data each fiscal year beginning in 1997. In any case, I hit the link for 2008 and started sifting through (just search for "liability" or "unfunded" and you'll find what you need quickly). On page 46 of that document, here's what you get:
Note the number I circled. $24,957. Unfunded. Doesn't sound bad until you realize that all the numbers on this page are in MILLIONS! So $24,957 Million = $25 BILLION! (With a really big, capital "B") The pension fund in currently $25 billion dollars in the hole! So I guess in the MEA's worldview, the numbers they're talking about will 'only' add about $54million per year to a $25billion dollar hole. No problem!Since Michigan's fiscal year doesn't end until June 31, the above numbers were released before the housing meltdown (I have my own take on that here). So we really won't know for a while, but I will guess that $25Billion will go over $30Billion or more this summer, a combination of pension fund losses in the market, and underfunding the fund in the first place. In addition, I would just note the yearly unfunded liability since 1997. It got really bad once Granholm-Cherry got into office. Sure you can blame the state economy, but that is totally the resposibility of the administration. After all, we've been in a one-state recession for 6 years now. The debt will continue every year for the foreseeable future. No end in sight. Just a monster tsunami developing off our fiscal coast (speaking of - pensiontsunami is a website you all might want to bookmark). A time of reckoning will come.
So back to MEA's proposal. It's basically a credit card solution. Use the plastic now. Pay for it for years to come. I don't believe that this will do anything good for Michigan's future, short or long-term. Even in the short term, the money saved now in paying younger versus older teachers will be outweighed by making the debt avalanche bigger, thus making it a more difficult problem in the future. I give this proposal a thumbs down.
