Traverse City Record-Eagle

Other Views

May 10, 2014

Another View: Think of 13th checks as nothing but bad luck

Quite probably the minds who came up with paying public retirees a “bonus” pension check when investments were performing well had good intentions.

But good intentions pave many roads that travel to undesirable locations, and the so-called “13th check” bonus payments are now considered among the reason that some pension funds suffer financial troubles.

There are laws and accounting standards used to help assure that long-term investments such as pensions are managed in responsible ways.

Yet somehow, the entire nation has heard the story of how Detroit’s General Retirement System paid out almost $1 billion in “13th checks” over 22 years, a fact now regarded as central to the underfunding of the pension program for city employees.

Detroit is the extreme example, but, as recent news reports show, other public pension funds have used the bonus system, too, including funds for retired state of Michigan employees and for retired Michigan teachers.

The Detroit Free Press recently reported that some $641.4 million was paid from the Michigan Public School Employees Retirement System and $238.5 million from the Michigan State Employees Retirement System between 1982 and 2002.

The last such checks were issued in 2002 to teachers and state officials say there are no plans to resume the practice.

But state law allows it when investment returns exceed 8 percent. State officials apparently once interpreted that to mean an annual return, then a return spread over several years and now a return spread over the life of the pension funds, which date to the 1940s.

Fortunately, fewer than 500 of 57,000 state retirees would even be eligible for a 13th check. (Only those who retired before Oct. 1, 1987, could participate.)

Unfortunately, the law remains, a relic of a time when we had less understanding of how deep a future economic downturn might go.

The Great Recession taught Americans a number of difficult lessons about financial risk. Ignoring those lessons is foolish. Bonus payments to pensioners are no bargain when they leave pension trusts underfunded and put a growing burden on taxpayers.

Those overseeing public pension funds big and small must take a hard look at how they do business. Caution and responsibility are watchwords going forward.

Lansing State Journal

1
Text Only