[See Detroit Free Press reporter Paul Egan's April 27, 2014 story and April 29 Lansing State Journal editorial.]

The phenomenon of the 13th check goes back at least to the early 1980s. It is a clever idea for siphoning off money from pension funds. It works like this: In years when pension fund earnings are higher than, say, 8%, the excess earnings are divided up and distributed to the pension recipients. This is from a report of an investigation into the causes of the Detroit bankruptcy by Detroit Free Press reporters Nathan Bomey and John Gallagher:

Pension officials handed out about $1 billion in bonuses from the city’s two pension funds to retirees and active city workers from 1985 to 2008. That money — mostly in the form of so-called 13th checks — could have shored up the funds and possibly prevented the city from filing for bankruptcy. If that money had been saved, it would have been worth more than $1.9 billion today to the city and pension funds, by one expert’s estimate.

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. 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.

Wayne County also has a 13th check provision. Here's what county executive Robert Ficano said about it in a June 24, 2012 letter to the Detroit Free Press:

The impact of the 13th checks [on Wayne County's pension fund] has been severe. The annual bonus payouts alone have drained the fund of $391.9 million since 1986, and $91.5 million since I took office in 2003. The pension fund's actuarial service, Gabriel Roeder Smith & Co., wrote in September of 2010: "We estimate that the Wayne County Employees Retirement System would be approximately 90% funded on a funding value basis as of the last actuarial valuation (Sept 30, 2009) if there had never been a 13th check program."

Bay City has a 13th check program, although no distributions are made unless pensions are 100% funded:

Started in 1999 and discontinued in 2006, the 13th check program cost the Bay City police and fire pension system at least $2 million in distributions and lost interest earnings, according to Bay City's Chief Accountant Cathy Szostak. The pension fund is not 100 percent funded now, partly as a result of that. (MLive.com, September 15, 2013)

So does St. Clair County. And it is not just a Michigan thing. San Diego's program has been in the news recently.

The State of Michigan has a 13th check provision for its public school employees (MPSERS) and state employees (SERS) retirement systems. Nearly $900 million has been distributed since 1982, but none after 2002. (Notes on the sources of data for the following table are here.)

	School Employees (MPSERS)						State Employees (SERS)
	Investment Earnings %	Total  Payout	Number of Retirees	Av. Payout per Retiree			Investment Earnings %	Total Payout	Number of Retirees	Av. Payout per Retiree
1982	10.18	20,181,937	55,257	365.24		1982	10.16	8,799,963	16,867	521.73
1983	13.04	27,635,519	57,854	477.68		1983	13.32	11,701,708	17,788	657.84
1984	10.20	18,812,744	60,435	311.29		1984	10.32	9,550,868	19,423	491.73
1985	9.72	12,402,714	63,184	196.30		1985	9.84	11,045,319	20,869	529.27
1986	12.85	173,791,208	69,001	2,518.68		1986	12.75	65,006,434	21,271	3,056.11
1987	16.5	236,993,278	73,316	3,232.49		1987	15.8	75,214,272	21,873	3,438.60
1988	7.1		76,111			1988	8.1		23,008
1989	9.8	28,088,593	79,917	351.47		1989	10.1	15,488,627	24,187	640.37
1990	8.3	1,224,050	83,286	14.70		1990	8.4	134,184	24,863	5.40
1991	7.4		86,253			1991	7.2		25,566
1992	5.8		90,201			1992	5.9		28,856
1993	7.1		93,574			1993	7.1		29,175
1994	6.1		97,989			1994	6.1		29,962
1995	7.4		103,151			1995	7.5		30,562
1996	8.9	58,800,478	107,465	547.16		1996	8.9	15,234,884	31,093	489.98
1997	23.6	6,228,619	111,842	55.69		1997	23.2	24,832,674	36,123	687.45
1998	8.3	5,992,263	116,620	51.38		1998	8.2		36,185
1999	16.1	9,406,311	120,913	77.79		1999	16.3	678,314	36,346	18.66
2000	14.5	11,464,638	126,115	90.91		2000	14.8	435,904	36,705	11.88
2001	(11.5)	13,799,341	130,790	105.51		2001	(11.5)	378,467	37,111	10.20
2002	(10.5)	16,574,185	135,277	122.52		2002	(10.3)		39,666
2003	14.8		139,814			2003	14.7		45,491
2004	12.6		145,378			2004	12.4		45,619
2005	12.8		151,706			2005	12.8		45,801
2006	12.8		157,163			2006	12.8		45,980
2007	17.2		162,844			2007	17.2		46,886
2008	(12.3)		167,265			2008	(12.5)		48,078
2009	(6.1)		171,922			2009	(6.3)		49,029
2010	8.8		187,722			2010	8.5		50,462
2011	6.6		192,435			2011	6.5		55,648
2012	13.5		196,661			2012	13.4		56,288
2013	12.5					2013	11.4
Total Payout:		$641,395,878				Total Payout:		$238,501,631

For the table, I calculated average payout per recipient by dividing total payout by number of retirees, but recipients don't all get the same amount. Each recipient's share is determined by the number of "units" he has. He gets one unit for each year of service he had at retirement and one unit for each year he's been retired. So while the average payout for SERS retirees in 1987 was $3,438.60, some got a lot more and others got a lot less.

The 13th check provision is state law. For state employees, it is Section 38.20g of the State Employees' Retirement Act, Act 240 of 1943. For public school employees, it is Section 38.1404a of the Public School Employees Retirement Act of 1979, Act 300 of 1980. I've attempted to read those sections in an attempt to understand the current status of the 13th check, but I just can't do it. That stuff is too complicated for me. I've also attempted to get answers from state officials, with little success. But I did find brief explanations in the 2012 Comprehensive Annual Financial Reports (CAFR) for the two systems. Here is what it says in the SERS CAFR (page 82):