Tuesday, March 5, 2013

2012 MPSERS Financial Statement Released

Thirty days late is better than never; the MPSERS Annual Report has been posted. You can view the report here. Upon first review there is good news and bad news. I'll provide a detailed analysis once I've worked through all 111 pages. A few notable items jumped to the front including:

  • Funded ratio (using the "smoothing" accounting trick) has fallen to 64.7% (pg.36)
  • Total unfunded liability of pension fund is $22.4 BILLION and $25.9 BILLION for Other Post-employment Benefits (health care). Total Unfunded position: $48.3 BILLION
  • Investment assumptions continue to remain insupportably high at 8% (pg. 37)
  • Total portfolio returns lagged market indexes but reported a solid 13.5% return (pg. 7)
  • Five year total return on portfolio is annualized at 1.6% (pg. 7)
The one thing that accounting gimmicks (smoothing) and inflated assumptions cannot hide is the demographic wave which continues to threaten the school aid fund... soon there will be more retirees drawing from the pension system than there will be employees paying into the system. The following chart on page 102 of the report is clear:

There is little to no likelihood of reversing this trend. All demographic studies support the fact that Michigan is getting older. There will be fewer school age children added to the system and there will be a declining need for additional teachers. With only 27,108 more active members than retired members, it's likely that the lines will cross in the next two to three years. The recent changes enacted to bolster the system might delay the need for more dramatic actions, but like all political acts it only kicks the can further down the road.