Retirement plan for UM System employees faces $315 million shortfall
The UM System is $315 million short in the total amount of money that will be owed to future retirees on its pension plan.
Members of the UM System Board of Curators are considering ways to solve the problem, including encouraging some participants to opt out of the benefits.
Curators held a special meeting Friday to discuss ways to increase investment returns to pay for employee pensions, citing the latter as “the largest liability” for the UM System. The board will meet again in April and may vote on proposed changes to the pension plan.
On Friday, curators briefly heard proposals to offer cash-out options, allowing participants to take out their benefits immediately. Another proposal would provide employees on the pension plan with an option to opt out, putting them on a defined contribution plan similar to a 403(b) plan.
MU officials stressed that the concern is over future retirees’ payments, not payments owed to former employees who are already retired.
The employee pension plan has been closed since 2019, meaning nobody hired after that year is eligible for the plan. However, according to documents used in the meeting, paying out the pension is still the largest financial responsibility for the university system.
Currently, the total pension liability stands at around $4.9 billion. This number was projected to rise over the next 20 years and peak in the 2040s before gradually decreasing.
The university system estimated that $19 billion is needed to pay out all employees on the pension plan.
Other proposed major changes discussed in the meeting included the system’s investment portfolio. There will be a 3% shift from U.S. Treasuries and Treasury Inflation-Protected Securities to real estate.
According to documents used in the meeting, the system will also invest more in properties used in the distribution sector and supply chain. Chief Investment Officer Thomas Richards called these investments “recession-proof.”
Moreover, the system will invest more in multifamily homes, such as duplexes and apartment buildings. The plan would also increase investment in private equity — particularly venture capital firms — and funds to biotech and information technology start-ups.
Richards said similar investments have done very well in the past. The university system will also put more money in mid-sized investment vehicles such as investment funds, trusts and limited partnership companies.
Management fees also are expected to increase by more than $3 million because of increased investment in the private markets.