2 Michigan pension funds still offer bonuses to some retirees

By Paul Egan 
Detroit Free Press Lansing Bureau
April 27, 2014


LANSING — The 13th check, a bonus pension payment that drained nearly $1 billion from the City of Detroit’s General Retirement System over 22 years, has been cited during bankruptcy proceedings as a significant factor in the underfunding of the city’s pension plan for civilian employees.

But the 13th check, also blamed in part for problems with the Wayne County Employees’ Retirement System, isn’t just a Detroit phenomenon.

Two State of Michigan pension funds — one for retired state employees and one for retired teachers — distributed nearly $900 million through 13th checks between 1982 and 2002, records show. About $641.4 million was paid from the Michigan Public School Employees Retirement System and about $238.5 million from the Michigan State Employees Retirement System.

State laws that provide for — and in certain circumstances require — payment of the 13th check remain on the books.

Michigan’s Office of Retirement Services has not paid such a bonus to state government retirees since 2001 or to school retirees since 2002 and “does not expect to issue a 13th check in the foreseeable future,” said Kurt Weiss, a spokesman for the state’s Department of Technology, Management and Budget.

However, “there are no active plans right now to amend or repeal the legislation” providing for the 13th checks, Weiss told the Free Press.

That’s a mistake, even if relatively few retirees are eligible to receive the checks if and when they are issued, said Steve Harry of Lansing, a former employee of the Office of Retirement Systems who writes a blog about public policy issues and has researched the 13th check issue.

“It’s a crazy idea: Pensioners get a bonus when a strong stock market results in big gains for the pension fund, but they don’t suffer when stocks are down,” Harry said. “It is a great deal for them — not so great for the taxpayers who are forced to make up the difference when those pension funds are short.”

The state “should make it clear that there’s nothing like that any more — at all.”

Only state employees who retired before Oct. 1, 1987, are eligible for a 13th check. Bob Kopasz, chairman of the Michigan State Employee Retirees Association Council, estimates fewer than 500 of the more than 57,000 state employee retirees would be able to collect the checks.

Beyond that, the state law that sets out when the state must pay a 13th check and how to calculate the amount is anything but clear. One reading of the law — the way Harry reads it — would require such a payout any year returns on the pension fund exceed 8%.

The state takes the position that such payments are required only when returns exceed 8% over the life of the fund, which dates to the 1940s, said Lauren Leeds, a DTMB spokeswoman.

It’s possible — though highly unlikely — the next 13th checks could be paid in 2018, Leeds said.

Kopasz said the state used to issue the bonus checks based on annual returns, but in the late 1990s began using a leveling calculation that considered the rate of return over longer time periods.

The law never changed, but the state’s interpretation of it did, Kopasz said.

Stephen Crippen, an Office of Retirement Systems official, said he can’t speak for what happened before he joined the office in the late 1990s, but he uses calculations that offset years of investment gains with years of investment losses before authorizing a 13th check.

Annual returns exceeded 8% in 12 of the 17 years from 1997 through 2013.

“Most of the people who got the 13th check for years think the retirement system is just playing games with them,” Kopasz said.

Bruce Andrews, who retired in 1984 after more than 34 years with the Department of Natural Resources and now lives near Escanaba, is among those eligible for the 13th check.

He used to be involved in the retirees association and remembers when the checks were sometimes in the thousands of dollars, even exceeding a retiree’s annual pension amount in at least one instance.

“We used to really look forward to that,” said Andrews, who noted annual cost-of-living adjustments are capped at $300.

Though 13th check payments at certain times may have been higher than necessary, “I think it was a fair way to adjust it for inflation,” said Andrews, who receives a pension of about $22,000 a year.

Kopasz said he understands critics who say issuing the bonus checks is financially unsound, but overall, “I don’t think the 13th check had that big of an impact,” he said. “There were some years where there was a 13th check, and others where there was not.”