Behind the Budget: MARSP’s Push for MPSERS Funding Security

Behind the Budget: MARSP’s Push for MPSERS Funding Security

In February, the Governor shared her initial budget recommendations, which set aside $1.7 billion for direct contributions to MPSERS retirement costs. The proposal also reduces an anticipated $670 million extra payment towards MPSERS health benefits (known as other post-employment benefits or OPEB). The Administration presented data showing that OPEB is now more than “fully funded” (more on that below) and proposed reallocating about $670 million toward School Aid operational funding in FY 2025.

Over the last month, MARSP carefully examined the Governor’s proposal and met with key stakeholders to discuss its implications. As we continue working to defend public school retiree interests, members can amplify our efforts by learning key facts about the issue and reaching out to their elected officials.

Key facts about MPSERS OPEB funding and the Governor’s budget proposal

  • Public Act 300 of 2012 mandated the pre-funding of MPSERS’ other post-employment benefits (OPEB). Pre-funding is a best practice that ensures future healthcare costs are covered. The technical name for these “future costs” is unfunded actuarial accrued liability (UAAL). Within MPSERS, there is a pension UAAL and an OPEB UAAL. Read MARSP’s article on MPSERS finances and UAAL here.

  • MPSERS is governed by Public Act 300 of 1980, also known as the MPSERS Act. In 2017, reforms to the MPSERS Act set a “ floor” for the state’s contributions to MPSERS OPEB and pension UAAL. This means that the state may not contribute less than the year prior when OPEB UAAL is below 100% funded. The same goes for the pension fund.

  • According to statute, state budget calculations use the MPSERS UAAL funding percentage from three years prior. The Fiscal Year 2025 state budget is based on a 2022 valuation that showed OPEB funding at 99.2%, just below the 100% threshold.

  • The Governor’s recent budget proposal includes the floor payment to get OPEB UAAL to at least 100% for Fiscal Year 2025. To reallocate the extra $670 million payment, however, they must amend the MPSERS Act to change the floor.
  • The latest valuation in September 2023 projected OPEB funding at 126.9%. Due to the three-year lag, this is the percentage factored into calculations for the Fiscal Year 2026 state budget. Even without an amendment in Fiscal Year 2025, the $670 million is expected to go to School Aid operational funding for Fiscal Year 2026 as existing OPEB UAAL will be paid off.

  • Legislators are now debating interpretations of the MPSERS Act. Some argue that the MPSERS Act does not differentiate between pension and OPEB UAAL – both should reach a funded ratio of 100% before funding can be diverted to school district operational needs. From this perspective, the $670 million for OPEB could instead roll into pension payments in Fiscal Year 2025. 

  • In contrast to the MPSERS OPEB UAAL, the MPSERS pension UAAL was 68.8% funded as of the September 2023 valuation. It remains on track to achieve 100% funding by 2038.

  • As noted above, some legislators believe the MPSERS Act does not differentiate between pension and OPEB UAAL. In practice, the Office of Retirement Services calculates the OPEB and pension UAAL payments separately. On March 12, the Executive Director of ORS, Anthony Estell, presented at the Pre K-12 Appropriations Subcommittee on the actuarial process for MPSERS and how it relates to the Governor’s proposal. Click here to view the presentation and subsequent discussion (ends at minute 16:30).

Member voices amplify MARSP’s effort

MARSP has a long history of defending the interests of public school retirees through analysis, dialogue, and the collective strength of our membership. As we continue working behind the scenes on this complex issue, public school retirees and beneficiaries can amplify our efforts by reaching out to legislators.

Contact your legislators:

Example script:

“My name is ______ and I am a member of the Michigan Association of Retired School Personnel. As a retiree who relies on MPSERS benefits, I am concerned about the proposed changes to OPEB funding. I urge you to study this proposal and do everything in your power to ensure OPEB remains permanently 100% funded. I also ask that you ensure the state upholds its commitment to pay off MPSERS pension UAAL by 2038, if not sooner. Thank you for your attention to this matter.” 

MARSP will continue to update members as the budget process moves forward.

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