Opinion | Why does ‘fixing’ Michigan pensions stick it to workers?

Bridge Magazine has been highlighting the fact that many public employers (and taxpayers) now face large unfunded retirement liabilities for pensions and retiree health care. I spent most of my legal career suing employers who tried to cut vested benefits for past retirees. I have spent the last six years suing to get health care benefits restored for county road commission retirees.

Many communities and counties claim the costs are too burdensome and seek relief either from the state or its employees/retirees. I write to suggest that this “problem” was really just a poor choice made by public employers to defer paying (funding) for these benefits.

Kicking-the-can-down-the-road was easy - until now. But retirees are not responsible for this lack of funding and arguments that they should accept cuts are unfair.

Employers always have the right to change benefits, including retirement benefits, for active employees – current workers who can react by choosing other employment. By contrast, retirees experiencing cuts are generally no longer working, and thus have few options.

More importantly, retirees earned these benefits and chose to remain with the public employer over their working lives - rightly expecting that retirement promises would be honored. Employees often chose to trade present wages for these deferred compensation benefits. Indeed, such planning is usually encouraged.

More importantly, the recommended “fix” (freeze or terminate pension and retirement health care benefits for current employees) has some unfortunate long term implications. Why does the ”fix” always stick it to the working class? Replacement defined-contribution plans are simply not the same as constitutionally-guaranteed pensions. (Michigan Constitution, Article IX, Section 24) Far too often, these savings plans simply are cashed out before actual retirement, or are simply not adequate.

The average 401(k) balance is under $50,000. How long will that last if the average retirement period remains at 15 years? Pensions are disappearing, and are now available for less than 25% of full-time workers. In 1975, that figure was 90%.

The Citizens Research Council of Michigan issued a report in July 2009 that notes that Social Security only amounts to 30 percent to 50 percent of pre-retirement income. Absent national health insurance, we can continue to expect health care costs to increase dramatically, while employers

also seek to shift costs to employee/retirees. The report concludes that these “cost shifting” employer reductions in retirement benefits necessarily means future generations of elderly will be “poorer”. Most will also be forced to retire later.

If you want to point fingers, obviously the past boards or elected representatives who granted these benefits and then decided not to set aside funds to pay when due, are the primary culprits. They clearly chose to shift these costs to future elected officials and taxpayers. I just

do not understand complaining that employees who sought, or the public-employee unions that negotiated, for retirement benefits are somehow at fault.

Our elected state government also played a role in letting this “crisis” occur. In 1974, Congress responded to the failure of some private employers to pay retirement benefits by passing the Employment Retirement Income Security Act. ERISA provided for minimum funding standards

and reporting requirements for employee benefit plans. In 1990, the Financial Accounting Standard Board issued Standard 106, requiring that these costs be reported in financial statements as debt when the “employee renders the service necessary to earn their

post-retirement benefits.” In 2004, the Government Accounting Standards Board issued Standards 43 and 45 to warn that non-pension retirement benefits should not be handled as “pay-as-you-go” costs. My point is that funding failures for future deferred retirement benefits has been a well-known problem for almost 50 years.

In 2017, the State finally required public employers to report and fund these costs. Better late than never, I guess. But had such deferred-compensation benefits been properly funded when created, we would not be here. As usual, the solution puts the burden on employees/retirees - those least able to deal with it.

Bottom line - look in the mirror if you really need to find someone to blame for unfunded liabilities - you voted for those who chose to let this “crisis” develop.