State of Michigan Attacks Teacher Pensions

Jun 19, 2017

The State of Michigan took another step toward gutting school employees’ retirement funds.

The state’s legislatures voted to shift the school employee retirement plan, the MPSERS, from a "hybrid" mix of pension and 401(k)-type plan to a complete 401(k) for all new public school employees.

Not officially, though–they’re sneakier than that. No, instead of outright forcing the change on employees, they’re strongly "encouraging" new employees to make the choice of 401(k)–by making the hybrid more expensive, and sweetening the pot for the 401(k) with greater employer contributions. And, just for good measure, all new employees will automatically be placed into the 401(k) system; if they want to choose the hybrid system, they have to actively seek to change their enrollment.

AND–if the hybrid system’s funding falls below 85 percent for two straight years, that system WILL be closed to any new employees. That funding can fluctuate a LOT since it’s based on stock prices which can rise and fall very quickly. So, what they’re presenting as a choice right now, they are virtually guaranteeing will become mandatory in just a couple years’ time.

The excuse the legislators give for this change is that the pension system has become too expensive, with an unfunded liability of more than 26 billion dollars and a funding ratio of just over 60 percent. BUT pointing to the unfunded liability is just an excuse–for a couple reasons.

First, everyone in the legislature knows that the unfunded liability grew by leaps and bounds after the stock market collapsed in 2008-2009. Before then, it was 5.7 billion dollars, for an 88.7 percent ratio. But the state lost lots of money in that stock market collapse, just like all states did. Why? Because they don’t keep the workers’ money tucked safely away. No, they take it and give it away to banks and corporations, in multi-billion-dollar give-aways. And in fact, investing that money in the stock market is one way to give that money to Wall Street brokers. The brokers make their money from those investments, no matter what happens to the stock price. So, the banks and corporations got paid; the state coffers got drained; and taxpayers got stuck with the debt.

The other thing that makes the unfunded liability a smokescreen is what’s been happening to public school funding in the past ten years. With the explosion of charter schools in the state, more and more money has been drained away from local public school systems as more and more money has gone into the charter schools. Charters don’t pay into the MPSERS; and local school districts are left with far less money and can’t make up their portion of the funds–because even though it’s a state-wide public school retirement system, it is paid into by the state and the local districts. And even though Michigan has a supposedly state-wide funding system, it is not at all equally funded from district to district. And since there are many more charters in poor and working class districts than in wealthy ones, the poor and working class districts are far more underfunded than the wealthy ones–and so are their retirement funds.

And now, the state uses that debt to say that the pension system is unworkable and needs to be cut. They want to shift everyone to a 401(k) system–a system that workers themselves have to pay much more into, in order to get anything out; and a system that is a LOT less stable. As anyone who lost huge amounts of their retirement savings after 2008 knows very well!

So, the underfunding in the pension programs has been caused by the banks, by the corporations, and by the state government that has looked out for their interests above all else. And it’s used to take more and more from working people, and to make workers pay for a crisis that we did not create.