Monday, October 23, 2006

Open Letter to Pension Experts

The following is a letter I sent to experts on Pensions and Pension Plans. It address the real world issues confronting the people that have to struggle with problems that sound interesting in Ivory Tower discussions, but have significant impact on our everyday life. Specifically - it focuses on how Michigan, and in particular Birmingham Schools, are impacted by the unfunded position of State sponsored pension plans.


Gabriel, Roeder, Smith & Company
Attention: Mr. Norman Jones, Mr. Paul Zorn
One Town Square
Suite 800
Southfield, MI 48076


Dear Mr. Jones and Mr. Zorn,

In researching the Michigan Public School Employees Retirement System (MPSERS) I came across your letter (http://www.nctr.org/pdf/grswilshireresponse2003.pdf) to Mr. Nesbitt of Wilshire & Associates regarding his report on the condition of Defined Benefit Pension plans. Your rebuttal letter concluded that the funding condition of State Pension Plans is not as bad as the Wilshire report might lead readers to believe.

I respectfully disagree with you; I think the Wilshire report properly highlights the concern all tax payers and plan beneficiaries should consider. I believe your position conveniently avoids an assessment of how a declining economy, an increasing proportion of retirees over new hires, and the unrelenting increase in healthcare costs are creating a nexus of catastrophic forces that are jeopardizing our economic future as well as a foundational construct of American Democracy – Public Education. The pension problem in Michigan is pressuring school districts across the state into program cuts and restructurings that have the potential to gut our education system. As President of the Birmingham School board I have a particularly keen view of the situation. If I could persuade you to move away from the theoretical and into the practical my experience is typical of most districts across the state.

From the 2003-04 to the 2006-07 school years my aggregate salary costs increased $616,779; that’s only 0.99% on a $62.9 million salary budget. During that same period my Healthcare costs increased $2.69 million (an increase of 22.48% or 4.37 times faster than salaries) and my Defined Benefit contribution (mandated by the State) increased $2.98 million (an increase of 36.83% or 4.83 times faster than salary). Independently, this is an enormous problem, but when combined with two years of State funding cuts, and two years of funding increases that do not cover the acceleration of Healthcare and Pension costs the result is a crisis – which is precisely the opposite of what you attempt to argue in your position against the Wilshire study.

Any attempt to “decouple” Healthcare from Pension Benefits is disingenuous. These two issues are joined at the hip as a review of the financial statement of MPSERS shows (http://www.michigan.gov/documents/mpsers2005cafr_145849_7.pdf). The actuarial unfunded deficit of that program is $7.5 BILLION for benefits and over $15.6 BILLION for Healthcare obligations, a total of over $23.1 BILLION. Schools cannot fund these deficits over 10, 20, or even 30 years without cutting services and employees, how is this not a crisis? We do not have an unlimited elasticity for funding allocations, and we do not (or should we have) and unlimited ability to tax for overreaching and unchecked promises.

My teachers and my students deserve better. The Legislators of Michigan must confront the problem now; your position only encourages them to push solutions off into an ever bleaker future. The Wilshire reports have correctly identified (and in fact have understated the problem by not including Pension Plan Healthcare promises) a crisis; the reports sound an appropriate alarm regarding Defined Pension Plans. My experience in seeing how one of the best school districts in Michigan has been negatively impacted by the condition of one of these plans (MPSERS) convinces me that finding a solution to the Pension and Healthcare funding crisis is the biggest political and economic challenges we fact today. Alarm is required to confront the problems associated with these types of plans; continued delay in addressing the problems will only hurt the children of my district and in districts across the State, for the foreseeable future.

I encourage you to apply pressure to those in a position to make effective change – add your voice to the voices of the parents in my district in encouraging our State Legislators to address the conjoined issues of runaway Healthcare and Pension costs.

Thank you for your time,





Robert Lawrence
President, Birmingham Board of Education


CC: Representative Shelly Taub, 40th District
Senator Shirley Johnson, 13th District
Senator Gilda Jacobs, 14th District
Mr. Stephan Nesbitt, Wilshire Associates

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