Michigan Teacher Pension Reform is “Credit Positive,” Per Moody’s

Commentary

Michigan Teacher Pension Reform is “Credit Positive,” Per Moody’s

Michigan’s recently enacted teacher pension reform received more praise this week when Moody’s Investor Services gave the legislative effort a “credit positive” review, citing reduced taxpayer risks for future employees as its reasoning for the finding, referring to the fact that new teachers in Michigan will be in either a defined contribution retirement plan (with no taxpayer risks) or a defined benefit plan with 50/50 cost-sharing on potential future unfunded liabilities.

According to Moody’s:

The [reform] is credit positive for the state and participating local governments in the Michigan Public Schools Employee Retirement System (MPSERS) because these governments will no longer carry the entire burden of investment performance risk for new employee pensions.

The Moody’s assessment is consistent with a similar finding last year after overwhelming voter approval of Arizona’s Proposition 124, a key element of that state’s 2016 public safety pension reform effort:

Approval of [Proposition 124] is credit positive for Arizona and its local governments because it will replace PBIs, which were unfunded benefit increases, with more predictable cost-of-living adjustments (COLAs) that will be funded as part of ongoing plan costs.

The Pension Integrity Project at Reason Foundation is proud to have been part of developing both of these pension reform efforts that have been viewed positively from a state credit rating perspective. Read more about Michigan’s MPSERS reform here and Arizona’s public safety pension reforms here and here.

Anthony Randazzo

Anthony Randazzo is a senior fellow at Reason Foundation, a nonprofit think tank advancing free minds and free markets.

Leonard Gilroy is Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.