Overpaid state retirement funds will be used to help pay future costs

contact: Cheryl Roland
| WMU News

KALAMAZOO, Mich.—As one of seven Michigan universities in line to receive a refund on nearly 20 years of overpaid pension fund contributions, Western Michigan University is planning to use its refund to help pay future retirement and health care cost increases.

WMU will use a $24.2 million refund to create a designated endowment that will to be used to help offset future payments to both employee retirement and health care costs connected with the Michigan Public Service Retirement System—MPSERS. The refund was received Sept. 30.

The Michigan Office of Retirement Services discovered earlier this year a mistake in how it had accounted for the seven universities' payments. Since 1997, the seven universities were making payments greater than required by law. The result was an overpayment by each of the schools into the pension fund. The universities were informed over the summer that they would be receiving a refund of the amount overpaid and the accrued interest. 

"We looked very carefully at how to maximize the return of this money to the University and use it wisely for the future," says Jan Van Der Kley, WMU vice president for business and finance. "If we use it to pay our annual bills from the Office of Retirement, it will be gone in two years. By investing and generating additional income, we can help defray future cost increases and have a more stable and predictable annual budget line for MPSERS costs."

Van Der Kley points out the University's payment to the system for retirement and health care was $11.6 million in 2014-15, and $7.6 million of that amount was for retirement only. The state has projected WMU's MPSERS retirement cost as $10.2 million in 2017.

About MPSERS

MPSERS is a defined benefit pension system. Seven Michigan universities had employee members of the program until Jan. 1, 1996. Due to state law changes, no employees hired after that date are part of the system, but the universities involved still have a steadily declining number of active employees who are part of the system as well as a number of retirees and beneficiaries receiving benefits. The universities have been assessed annual payment amounts since 1997 that are based on the pension fund's unfunded actuarial liability at that time that was amortized over 40 years.

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