A New Mackinac Center Plan to Underfund Your Pension

The Mackinac Center has pushed for years to shut down the state pension system, including writing about it for ALEC. It’s a big job so in recent years they’ve focused on (who else?) public school employees.

Ramping up for this attack, the Center has published 133 pension articles so far this year, most focusing on the system’s underfunding and always recommending only one solution: privatization. Little attention is paid to the cause of this underfunding (the 2007 stock market crash and its very slow recovery). Only “the sky is falling” prose followed by the usual business-enriching recommendations.

pension

A Republican bill package (SB 172-8) would do this by converting your pension to a 401k-style retirement plan. That means the only thing that is certain about your retirement is that some unknown amount of money would be invested every pay period. What’s left when you retire depends entirely what happens in the stock market.

Writing about this last month, Mackinac Center staffer Anne Schieber said:

In a defined-contribution plan, government would be forced to place those retirement payments immediately into an account that was owned by the employee. Employees and taxpayers would no longer have to cross their fingers that retirement funds will be there in the future.

Never one to let the truth get in the way, Schieber fails to state the obvious: pensions are much more dependable to retirees than 401k plans. If you want to worry about whether you can retire on a specific date, invest your entire retirement in the stock market.

The most likely form these bills will take is to force only new employees into defined contribution plans. That would clearly be only a first step, the Mackinac Center would follow through on closing the pension system whenever it can summon the votes.

But this first step serves their ultimate goal: when fewer employees pay into the system the underfunding grows every year, followed by the inevitable cries to close the entire system.

The bills were scheduled for a hearing on Thursday, September 18th, but the meetings were cancelled at the last minute.

Update:

Converting the state pension system into a defined contribution system is not a new idea. Shifting all the risk to employees has been the objective since Governor Snyder took office in 2011. Within months, he had begun work, starting with new hires in local government, as well as state employees. In 2012 he moved on to school employees.

But there was a problem, a big problem. Thanks to years of underfunding, the 2007 economic crises and the slow recovery, the MPSERS unfunded liability had grown, and would grow even faster if new employees weren’t paying into it.

Again, this is a good thing if you’re trying to privatize the whole thing: As Noam Chomsky said:

That’s the standard technique of privatization: defund, make sure thing don’t work, people get angry, and hand it over to private capital.”

So the legislature hired an outside consulting firm, The Segal Group, to:

… evaluate the existing Hybrid plan and the impact of implementing a defined contribution plan for all new hires.

The results were not pretty. Segal found:

segalThe administration has to move quickly. As the economy recovers and the stock market with it, the MPSERS unfunded liability crisis will begin to subside, and with it, the sky-is-falling need to convert.

segal2
Download the entire study.
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