Gov. Rick Snyder has set his sights on pension reform in Michigan by proposing a reduction in the expected return rate for the state’s retirement plans and establishing a task force charged with addressing the Wolverine State’s growing unfunded pension liabilities.
In his proposed $56.3 billion 2018 state budget, released Wednesday, Mr. Snyder included funding for increased contributions to the $55.7 billion Michigan Retirement Systems, East Lansing, necessitated by his plan to lower the pension system’s assumed rate of return to 7.5% from 8%.
“This more conservative assumption will require additional state investments into the retirement systems, helping to ensure that available funds will be sufficient to pay the benefits that have been earned,” said a summary of the governor’s proposed budget changes.
Lowering the assumed rate of return and increasing state contributions to the four public defined benefit plans within the state’s umbrella retirement system will reduce risk and “remain on track to eliminate the liability entirely by the year 2038,” the summary said.
The unfunded pension liabilities of the four state-level retirement systems as of Sept. 30, 2015, (the most recent date available) totaled $33.2 billion, data from the Michigan State Office of Budget showed.
The unfunded liability of the state’s largest public plan, the $43.2 billion Michigan Public School Employees Retirement System, was $26.7 billion. The new lower 7.5% return target will be implemented over a two-year period for MPSERS, according to Mr. Snyder’s proposed 2018 budget.
The new expected rate of return will be applied to the other state defined benefit plans when the 2018 budget goes into effect on Oct. 1, 2017.
As of Sept. 30, 2015, the frozen $10.9 billion Michigan State Employees Retirement System had an unfunded liability of $5.8 billion; the $1.3 billion Michigan State Police Retirement System, $654 million; and the frozen $255 million Michigan Judges Retirement System, $8 million.
The state’s umbrella retirement system is managed by the Bureau of Investments, a division of the Michigan Department of Treasury, East Lansing.
Budget documents showed that the state’s pension contribution would rise by about $247 million in fiscal year 2018 and by $400 million in fiscal year 2019. The state’s fiscal year ends Sept. 30.
Mr. Snyder announced the establishment of his Responsible Retirement Reform task force earlier this week.
Members of the 20-person-plus task force include subject-matter experts representing labor and management, investment managers, insurance and finance professionals, local officials and legislators, according to a news release from the governor’s office.
“My goal for this task force is to have collaboration among legislators, state and local government officials, and employee representatives to ensure the financial stability and effective delivery of local government services for the coming decades,” Mr. Snyder said in the news release.
The task force has been asked to recommend pension and health-care reforms in the spring.