A new report released Monday by the Michigan Department of Treasury shows 22.4 percent of local units of government have underfunded pension plans, retiree health care plans, or both.
The report shows only the first 490 municipal governments assessed, with more expected to follow.
Ron Liex is with the department.
“This is a widespread and severe problem that affects communities in the upper peninsula all the way to southeast Michigan. There were some changes to accounting standards a few years back and that’s really brought to light this issue of underfunded retirement benefits.”
Local governments are considered to have underfunded pension plans if they fall under 60% of their obligations. Retiree health care is underfunded if it falls under 40%.
Liex said local governments can apply for a waiver showing they have a plan in place to fix their underfunded status.
“Those local units that declined to file a waiver or are denied a waiver must complete a corrective action plan to address their underfunded retirement benefits.”
Liex said corrective action plans will be reviewed by the Municipal Stability Board in May.
Reviews of municipal retirement and pension programs in Michigan is a new requirement under the Protecting Local Government Retirement Benefits Act, which was signed into state law last December.
Kelly Schroeder is with Traverse City Light and Power, which was listed as having an underfunded pension plan. She said Light and Power fell below state requirements when the Michigan Employees Retirement System of Michigan changed it’s assumptions in 2015.
“The methods changed so the mortality tables were adjusted to reflect longer lifetimes and the assumed rate of investment return was lowered from 8% to 7.75%. That was the biggest reason our funding level decreased.”
Schroeder said Light and Power has lowered retirement benefits for new hires and increased the amount of money they put towards retirement, putting them on track to be 100% funded within ten years.
A full list of local governments with underfunded pension or retiree health care plans can be found here:
http://www.michigan.gov/documents/treasury/Preliminary_Underfunded_Status_3.12.18_617111_7.pdf