Michigan police union concerned about pension monitoring maneuver
Lansing — A lame duck bill targeting a year-old state oversight program that monitors community pension and retiree health care plans is generating controversy because it could cement reporting requirements for local communities.
But the bill’s sponsor said there are issues with the proposed legislation and he’s working with the Treasury Department to correct them in a bid to ensure Gov. Rick Snyder would sign the legislation. The state Treasury Department spokesman would only say the department is reviewing the legislation.
"If we can’t come up with a solution that fits, then we won’t push it," said Sen. Geoff Hansen, R-Hart. "It has to be right.”
The bill has raised the hackles of some in the law enforcement community who are preparing for another round in an often-threatened legislative battle over unfunded liability reform.
Communities already keep track of their retirement systems locally and work out potential changes to retirement benefits at the bargaining table with their unions, said Kenneth Grabowski, legislative director for the Police Officers Association of Michigan.
“Every group is different, and it should be up to the local pension boards to make that decision, not coming from the state,” he said.
The bill would require local government retirement plans to change the way they report to the state, using a set payoff or amortization period and uniform assumptions regarding expected salary increases, rate of return on investments, life spans and health care costs to gauge their funded status. Those assumptions can drastically change the way a retirement system appears to be funded.
Currently, the task of setting those assumptions is left to State Treasurer Nick Khouri, who came out in September with new uniform assumptions for 2019.
“It sounds like things are working pretty well with those,” Hansen said. “We just want to make sure those continue because we’ll have a new treasurer soon.”
Legislators have tried to address the state’s unfunded liability problems in the past, after the recession left some communities struggling with lower returns on investment, longer life spans, higher drug costs and a shrinking pool of active employees to contribute to the system.
Michigan’s local government pension and retiree health care plans are each underfunded by about $9.1 billion, according to a local fiscal health report the Treasury published this month.
In 2017, legislators passed Public Act 202, which required local units of government with retirement systems to submit to the Treasury information on their retirement plans’ funded ratio, the community’s required contributions and the municipality’s annual revenue.
Using the local reports it received, the Treasury Department determined 215 communities are underfunded because they don’t have enough assets on hand to cover 60 percent of their pension plan’s liabilities or 40 percent of their retiree health care liabilities. The communities with underfunded plans included Berkley, Pontiac, Southfield, Dearborn, Hamtramck, Grosse Pointe Farms and Grosse Pointe Woods.
The underfunded plans were required to submit corrective action plans to the Municipal Stability Board. So far, the board has approved 24 such plans. More than 30 local units of government have not filed any paperwork with the state, according to the Treasury Department.
“We want to make sure they can pay the retirement costs that folks are due or the OPEB (other post-employment benefits) costs that folks are due,” Hansen said. “We want to make sure it is very transparent.”
The Michigan Municipal League has taken some issue with the current reporting requirements because, in some instances, they require redundant reporting or reporting based on assumptions that differ from those of the retirement plans’ own actuary, said Christopher Hackbarth, director of state and federal affairs for the Municipal League.
“We’re not asking for anything other than having us be very transparent on our actual experience,” Hackbarth said. “Why are we reporting on something that’s not reality?”
Any attempts to change the makeup of Public Act 202 are premature, Grabowski said, noting that the board has barely had a full year to implement the law.
“You’ve got to allow these local units of government to get their houses in order,” he said.
The Treasury’s report on local communities’ fiscal health this fall noted that the stress of unfunded liabilities on communities stems from a smaller work force contributing to a plan that has not realized the anticipated returns on investments or longer life spans of retirees.
Communities have pumped more and more money into the systems, sometimes reaching beyond the general fund to water and sewer budgets for funding. Municipal employers contributed roughly $1.5 billion to their retirement systems in 2016, an increase from $800 million contributed in fiscal year 2010, the report said.
With those contributions, local governments generally met their actuarial required contribution, but that benchmark keeps increasing with changes in actuarial assumptions and shortened amortization periods.
Retiree health care funds generally are worse off across the state because of rising health care costs and little to no requirements regarding funding levels for the plans. Some communities have bonded to cover the debt or used a pay-as-you-go method, the report said.
Changes to retiree health care systems are hard won, Hackbarth said. If the changes can’t be made at the bargaining table, communities are at the mercy of arbitrators who may or may not sympathize with an employer's situation.
“Cities don’t have the tools to control those costs,” Hackbarth said.