State Legislators are considering using the Lame Duck session as an opportunity to rob public employees of their retirement benefits. Led by anti-working-families billionaires including Dick DeVos, who believe that workers should only have access to a risky 401(k)-style retirement plan, there will likely be a serious attempt made to ban traditional pensions in the public sector. This would mean that hundreds of thousands of public employees would no longer have access to the most efficient and secure method of providing for retirement.
We need your help to push back against this attack on the retirement security of middle class Michiganders. Please contact your State Representative and State Senator and tell them that the Lame Duck session is no time to mess with people’s livelihoods. Below are some talking points that describe why traditional pensions are better for workers – and their employers – than other types of retirement plans.
Traditional Defined Benefit Plans Offer Better Return On Investment than 401(K) Plans
A 2014 study by former House Fiscal Agency Director Mitch Bean and former Michigan State Treasurer Robert Kleine found that traditional pensions offer an average 1% increased annual return on investment earnings over 401(k) plans, and have administrative costs (fees) approximately .5% less. This equals a 1.5% overall improvement on annual returns for traditional pension plans, a number that creates a dramatic difference in earnings over a 30 year work span.
Closing a Pension System Generates Large Transition Costs
When a pension system is closed, it must immediately receive a large infusion of funds to make up for the lost future earnings of new members. These costs, known as “transition costs,” can be massive. The Office of Retirement Services estimates that the state would need to add $500 million in new funds to the Michigan Public School Employees Retirement System (MPSERS) should it be closed. The Bean-Kleine study explained that these costs come from a combination of the loss of new member revenue and the necessity to reconfigure investment assets into a more conservative portfolio. There are also additional costs stemming from essentially running two retirement systems – one for current employees and one for those hired after the system is closed.
Pensions are not “Broken”
Two major economic downturns in the last 15 years have played havoc with traditional pension systems, but they are not “unsustainable” as some would claim. Just ten years ago, the public school pension system was nearly fully funded, and it, like most public pension systems in Michigan, is well on the way to recovery. What is truly broken are the retirement dreams of those workers nearing retirement who have only a 401(k) that collapsed during the Great Recession and do not have the ability to recover over time like traditional pension plans can. Those individuals face either working years longer than they had planned, or seeking public assistance if they cannot.
Pensions are Vital to Michigan’s Economy and Senior Wellbeing
The National Institute for Retirement Security estimates that pensions in Michigan generate over $11 billion in economic activity each year, and support 77,000 jobs. In addition, they play a key role in providing Michigan seniors with a safe and secure retirement. As the private sector has largely abandoned traditional pensions, government assistance programs to seniors have grown correspondingly. Public pensions are one of the last bastions of secure retirement for Michigan workers, including police officers, fire fighters and school teachers. Traditional pensions are the best tool for helping workers plan their own retirement and not have to rely on loved ones or public assistance to make ends meet.
The Last Month of Session is NOT the Time to Reform Pensions
Although the overall outlook of Michigan pensions is good, there are certainly changes that could be made to make it easier for public employers to deal with pension debts and ensure long term stability for public pension systems. However, the systems are far too complex to attempt any sweeping changes in the Lame Duck session like the ones being proposed by some elected officials. Michigan legislators should oppose rushing to judgement on this issue and instead tackle it in the next legislative session.
