Why you should care about pension liabilities

Tuesday’s front page of The Mining Journal featured an in-depth introduction to the newspaper’s series on pension liabilities.

Mary Wardell’s well-researched article kicks off more stories on this complicated, but important, topic.

First, it must be understood what unfunded accrued pension liability means: It’s the difference between the total amount due to both current — upon retirement — and retired workers, and the actual amount of money the system has on hand to make those payments.

Michigan is 61.6 percent funded, which is well under what the National Association of State Retirement Administrators, recommends for states: 80 percent at the least.

The traditional idea behind pensions was that employers and employees paid incrementally into a statewide pool, which grew over time to support retirees. However, expectations now are that pensions are pre-funded so future retirement costs are covered in advance.

Many factors, though, come into play: a volatile stock market, longer lifespans and a smaller workforce. For example, fewer workers mean fewer people paying into the system, which then requires employers to increase their contributions to support retirees.

What would that mean for the economy? Pension liabilities are not just an employer-employee thing. If the company — in this case, municipalities — has to increase its contributions, would it have to raise prices for its services? And who buys those services? The public.

An October article in Crain’s Detroit Business pointed out that some Michigan cities are cutting services for residents to pay for retiree health care or make payments to their defined benefit retirement plans. It already happened in pre-bankruptcy Detroit, where pension and retiree health care obligations forced cuts for essential services like police, fire, streetlights and others.

The Mining Journal series will cover pension liabilities and how they affect Marquette County, the city of Marquette, the cities of Negaunee and Ishpeming, public schools and what’s going on in the Legislature.

Each entity is unique, and the series will explain how each one is dealing with the pension challenges.

The effects will be far-reaching, regardless of how each Michigan resident is affected.

We strongly recommend people read The Mining Journal pension series to get a closer look at this complex issue.

Mining Journal (Marquette)

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