The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of September 30, 2015, the most recent date for which an actuarial valuation is available, Michigan's defined benefit pension system for teachers is 62.9 percent funded, an increase of 1.6 percentage points since NCTQ's last report. Its current pension debt exceeds $16,100 per pupil throughout the state. It also has a 21-year amortization period. This means that if the plan earns its assumed rate of return or 7 percent and makes its full actuarially determined contribution payments, it would take the state 21 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, Michigan's funding level is below recommended levels. The state's system is short of being financially sustainable according to actuarial benchmarks.
Michigan commits excessive resources toward its teachers' defined benefit retirement system. The employer contribution rate to the defined benefit plan of 25.78 percent is too high, in light of the fact that local districts must also contribute 6.2 percent to Social Security. Participating employers are required to contribute at an actuarially determined rate. While this rate allows the state to pay off liabilities within 21 years, it does so at a high cost, precluding Michigan from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate to the defined benefit plan of 3 percent on income up to $5,000, 3.6 percent on the next $10,000 of income, and 6.4 percent on all compensation above $15,000 is reasonable. Employees are automatically enrolled to contribute 2 percent of salary to the DC component and may elect to increase or decrease this amount. Employers contribute a 50 percent match up to a total of 1 percent.
Michigan Public School Employees’ Retirement System, Comprehensive Annual Financial Report for fiscal year ended September 30, 2015.
Michigan acknowledged the factual accuracy of this analysis.