16 Years Later, MPSERS Continues to Dig into Universities' Pockets
by Marcia Goodrich, magazine editor
Suppose you are a business owner shopping around for a more-affordable benefits plan for your employees, and you find a better deal with a different company. This new plan will save you and your customers millions while still providing your employees with quality benefits.
Suppose that you switch companies, but then the state orders you to keep paying premiums to the old company too, just as you had before. Suppose you have no voice in your premium or in the benefits it is funding. All you get to do is write out a big check every year to the old company. Forever.
This nightmare scenario is an annual reality for several of Michigan's universities, who are now pleading their case before the state. With state pension reform on the horizon, they hope legislators are finally willing to listen.
Until 1996, these seven schools, including Michigan Tech, Northern Michigan, Western Michigan, Eastern Michigan, Ferris State, Central Michigan, and Lake Superior State, were the state's only public universities participating in the Michigan Public School Employees' Retirement System.
Then, in 1997, the schools stopped adding new employees to the MPSERS plan. Instead, they were covered by other university benefit plans. Under most circumstances, you would think that the universities' MPSERS liability would gradually decrease. Instead, the opposite happened.
Under state law, MPSERS can still continue to collect from the schools, not just for employees still in the program, but also for employees who would have been eligible in succeeding years. And, thanks in part to retirement health-care costs, those bills have skyrocketed. In 1997, the seven schools paid a total of $25.3 million. By 2011-12, these universities are expected to pay MPSERS $48.9 million, despite adding no new employees to the system for 16 years.
"MPSERS assesses us not only for our current MPSERS employees, but also for employees who would have been members if we hadn't withdrawn," said President Glenn Mroz. "These are people who are covered by our own University health-care and retirement program who will never see any benefit from these payments.
"Even though we have opted out, we are being charged as though we opted in," he said. "Michigan Tech's 2011-12 payment to MPSERS is expected to be $5.6 million. If all our employees were on our current program and MPSERS were out of the picture, our costs would only be $800,000."
The potential savings--$4.8 million--amounts to $682 per student enrolled at Michigan Tech.
State support of all public universities has eroded, but the MPSERS costs have hit the seven universities particularly hard. "We not only had to absorb a $7.5 million cut to our state funding, we also had to give back almost 11 percent of our state appropriation to MPSERS," Mroz said. "We are being asked to cut everything, but we aren't allowed to cut that."
In addition, none of the seven universities have any members on the panel that determines MPSERS benefits. By law, it consists of active and retired public school employees appointed by the governor.
"We have no representation whatsoever," said Mroz, "and so we have no control over the benefits we are paying for."
To address the problem, the seven universities are asking the state legislature to allow them to determine the scope and design of the health-care plan they offer to their own MPSERS retirees.
In addition, they want to address who pays an employee's pension costs. Currently, the employee's last employer is completely responsible for their retirement. In other words, if Michigan Tech hires anyone from a Michigan public school, and that person retires from Michigan Tech, the University is liable for that person's entire retirement. The universities would like to see those expenses shared proportionately by both employers.
Senate Bill 1040, which would overhaul the MPSERS system, doesn't yet include these provisions, but Mroz hopes the legislature will act on the universities' grievances.
"We are at the point where we are paying 53 percent of our MPSERS employees' salaries into the program," said Mroz. "This is an unsustainable cost, for universities, for our students and for the tax-paying public."