Thursday, January 29, 2009

MEA Retirement Plan Sure to Kill Michigan Schools

The MEA’s proposed early retirement plan (which boosts the pension payouts for eligible teachers by an average of $500 per month) is such a monumentally bad idea it defies reasonable logic. The MEA must be using magical hedge fund math, or attempting to replicate a Bernard Madoff ponzi scheme. Here are some “inconvenient truths” about the condition of the Teacher’s Pension Plan (a/k/a Michigan Public School Employees Retirement System):

The plan (MPSERS) admits having an actuarial deficit of $30 Billion,
The plan LOST $9.2 Billion in asset value for the year ending September 2008,
State mandated pension contributions are consuming a higher percentage of school budgets than ever before (the projected contribution is expected to increase to 17.5% per salary dollar, then escalate to over 30% in the following five years). These are numbers from the Citizens Research Council.

The pension is in such bad shape that the current audit report is using asset valuations that are nearly 2 years old to calculate its health (the funded ratio). So while the pension claims to be 88.7% funded the number is more likely closer to 70% or less (taking into account the $9.2 Billion loss noted above). It’s possible that the actuarial deficit is approaching $45 billion. That deficit ($45 Billion) will come out of local school budgets; that kills local budgets even if it’s amortized over twenty years. The MEA proposal not only adds to the current burden ($981/student), it accelerates the need for contribution increases significantly (just amortizing the accrued unfunded liabilities of the system over 20 years will add $1,234/student per year ). That would consume 30% of the current foundation allowance. See a review of the issue here.

If the MEA is serious about helping local budgets here’s an idea; refund some of the nearly $350 million in overcharges levied to schools by MESSA (the health care administrator owned by the MEA). That money is sitting in MESSA accounts and rightfully belongs to Michigan tax payers; it also represents the projected shortfall in next years school aid funding.

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