The daily headlines seem to beat the funeral-march toward defined benefit plan (DC) extinction. The most recent casualty in the transition from DB plans to defined contribution (DC) plans is likely the Michigan Public School Employees Retirement System (MPSERS). Once again, concerns about severely underfunded DB plans is at the heart of the latest move in Michigan. The Republican-controlled Michigan Senate Appropriations Committee voted 9-8 Wednesday to close the school retirement system to new members.
Debates are heated as politicians and advocates from the pro and con side of the proposal argue over the senate decision. As reported Wednesday in the online version of the Detroit Free Press
The committee, over the objections of school employees, took up the legislation during the lame duck session to force new hires into a 401(k) style pension plan, instead of the blended pension and 401(k) system they can use now, known as the hybrid system.
Democrats denounced the legislation, noting that while MPSERS has an unfunded actuarial liability pegged at about $26.7 billion, the hybrid system has no unfunded liability.
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Related
The Demise of the DB Plan and Predictions for Defined Contribution Plans in 2017
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According to the Senate Fiscal Agency, MPSERS had an unfunded actuarial liability of $26.7 billion as of 2015. The hybrid system has no unfunded liability, according to Senate Fiscal Agency analyst Kathryn Summers, but money is being paid today to avoid potential risk in future years.
Politics aside, the underfunded DB pension situation is rapidly approaching crisis stage. This problem is real and it is critical. Evidence of the looming crisis can be seen in the forecasts of insolvency surround the Pension Guarantee Benefit Corporation (PGBC), the agency that provides insurance for underfunded pensions. It is estimated by many sources that the PGBC will face insolvency within ten years at the current pace, despite PGBC premiums being at historical highs.
