The trillion dollar gap

 

Pew Report: says Michigan 'Needs Improvement' On Retirement Funding

Michigan needs to improve the way it funds state employee pension and health care benefits, and without changes soon, residents will face higher taxes or cuts to social programs, the managing director of the Pew Center on the States said last week.

Sue Urahn spoke to reporters about a new Pew study showing significant gaps in the promises governments have made to their employees and how much money is actually in the bank to back that up
"The Trillion Dollar Gap: Underfunded State Retirement Systems and The Roads to Reform" shows that Michigan has promised $70.4 billion worth of government employee pensions. Thankfully, they have funded all but $11.5 billion, according to 2007 and 2008 data. The picture for retiree health care is much more alarming. In terms of retiree health care costs and other non-pension benefits, Michigan has $40.7 billion in obligations and $39.9 billion of that is unfunded.

Pew found that while Michigan paid more into the pension system than required, the same has not been true for retiree health care. According to the Pew figures, Michigan made a payment of $1.2 billion, when it should have been contributing $3.9 billion.

In the past five years, a couple states have restructured their retirement system, making it similar to Michigan's defined contribution plan, which does not impact school employees. But more states have taken steps to trim around the edges by requiring more contributions from state employees or reducing the benefits offered upon reaching retirement.

"Even if financial markets improve and pension funds recover, the fiscal crisis, political issues and demographic issues will continue their stress on retirement systems," Ron Snell, state services director for the National Conference of State Legislatures, said.

Read the report…

Read House Fiscal Agency reviews of the retirement reform proposal made recently by Governor Jennifer Granholm for state employees and for school employees…