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High Pension Stakes in the Great Lakes State

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Michigan has a pension problem. The complicated history between the state legislature and the state’s defined benefit pension systems has contributed to public sector employee shortages, including education, public safety, public works, and other state and local government positions. But now the question is does Michigan’s labor-aligned majority signal an opportunity for lawmakers to reverse the problematic pension reforms and closures from the past?

Over 25 years ago through Public Act 487, the Michigan State Employees’ Retirement System (SERS) plan was closed to state employees hired after January 1, 1997. This legislation created a second tier to the SERS system, offering only defined contribution (DC) plans to new hires in Tier 2. Supporters of the bill touted it as a cost-savings measure, even though the fund was at 109% and performing adequately at the time of its closure. Though the Michigan Public School Employees’ Retirement System (MPSERS) and the Municipal Employees’ Retirement System (MERS) remained open, Michigan’s decision as a bellwether state to close a major pension system catalyzed future changes in public-sector retirement across the country. Michigan’s move to (401)k style plans for its state employees had implications beyond setting a dangerous trend though–it also greatly affected the size and effectiveness of its public workforce. 

Since 1997, Michiganders have tried to defend the remaining pension systems against reforms that slowly chip away at retirement security and pension funding. However, MPSERS was converted to a hybrid program in 2010, introduced a DC choice in 2012, and passed legislation that changed school employees’ default retirement choice at hiring from the hybrid pension plan to the DC plan in 2017. Municipal employees have also faced attacks on their pensions over the years. Interference from billionaire-funded anti-pension groups has waxed and waned in time, but changes in the makeup of the Michigan legislature coupled with a nationwide renewed interest in DB retirement plans present pension advocates with a genuine opportunity to regain the benefits lost decades ago. 

Last year Michigan legislators overturned an anti-labor right-to-work law. Now union groups have come together to reverse decades-old laws that decimated retirement security for hardworking public employees. 

Nick Ciaramitaro, president of the Coalition for Secure Retirement – Michigan, penned an op-ed recently, outlining the problems that have been plaguing the public workforce since the pension closure. “Michigan’s shortage of teachers, public safety officers, and other vital public employees threatens to harm the quality of life in communities across the state,” Ciaramitaro writes. “This shortage isn’t new. It’s well-documented and has been an issue for years.”

The state of Michigan currently has nearly 600 vacancies, not including public school educators or school support staff. Corrections, public safety, licensing and regulatory, and transportation maintenance workers have the highest number of positions to be filled–all without the promise of a secure retirement. And since we know that pensions recruit and retain essential public employees, it would behoove lawmakers in the Wolverine State to strike while the iron is hot and explore the benefits of reintroducing a DB plan to state workers. For example, when the SERS plan was closed in 1997, it was 125% funded. That number has dropped to 57%, an unnecessary Unfunded Actuarial Accrued Liability (UAAL) created in part by the sharp loss of employee contributions. When workers contribute to the pension system with each and every paycheck, it fulfills one-third of fiscally responsible pension funding, along with state contributions and investment returns. 

Additionally, pension spending can be a major economic vehicle, particularly in rural areas. In 2023, defined-benefit pension payments supported $12.4 billion in total economic output–meaning for each $1.00 paid by a Michigan taxpayer toward the pension systems, $4.50 circulated back into state and local economies. Public pension expenditures account for an average of 5.4% of the Gross Domestic Product (GDP) in Michigan’s rural counties. In Alger County on the Upper Peninsula, pension dollars comprise nearly 16% of the GDP. 

Finally, Ciaramitaro notes the critical role that DB payouts play as a wealth equalizer for marginalized populations such as BIPOC and women. “Research from the National Institute on Retirement Security found that retired women in Michigan were 79% more likely to be above the federal poverty level if they have a pension income,” he writes. “Black retirees with a pension were 89% more likely to be above the poverty level.”

Michigan–a state long known for its down-to-earth, friendly nature, has some work to do when it comes to providing for its public servants and the communities that they serve. From road maintenance to clean drinking water, a healthy and robust public workforce will positively impact the state’s economy and overall well-being. It’s time to return pensions to the folks who deserve them.

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