Local units of government to submit plans to ensure retirement benefits promised are paid in the future

More than 100 local units of government will be developing plans to ensure the retirement benefits they promised to their employees and retirees are paid in the future, according to the Michigan Department of Treasury.

The local units are required to submit corrective action plans due to having an underfunded pension plan, retirement health care plan or both as defined in the Protecting Local Government Retirement and Benefits Act. Within 180 days, these entities must approve and submit a plan to the Municipal Stability Board that demonstrates their “underfunded status” has been addressed.

“Michigan’s local governments have an obligation to honor commitments made to retirees while maintaining adequate public services,” State Treasurer Nick Khouri said. “This is another important step as we implement last year’s legislation. Treasury looks forward to working with cities, counties and townships as they develop plans to ensure their long-term fiscal health.”

A retirement pension plan meets the state’s “underfunded status” if it is less than 60 percent funded and if an entity’s required contribution is greater than 10 percent of the entity’s total revenue. Retirement health care plans are considered underfunded if less than 40 percent funded and if the required contribution is greater than 12 percent of the total revenue.

Local units had the option of applying for a waiver to address their underfunded retirement benefits after being preliminarily identified as having an “underfunded status.” Those entities that declined to file for a waiver or were denied a waiver must submit a corrective action plan to be reviewed by the Municipal Stability Board.

The Municipal Stability Board was scheduled to meet for the first time on Friday, May 18. That was an organizational meeting and no action on corrective action plans were expected.

To date, the state Treasury Department has received retirement benefit information from roughly half of the local units of government required to report under state law. Additional corrective action plans may be required as the remaining entities continue to submit their retirement benefit reports.

State law exempts public bodies that don’t offer a retirement pension plan or a retiree health care plan. No action was required by entities that only offer defined contribution plans, such as a 401(k) or 403(b).

School districts, colleges and universities are also exempt.

Passed by the Michigan Legislature and signed by Gov. Rick Snyder in December 2017, the Protecting Local Government Retirement and Benefits Act incorporates four phases for local units to use in addressing their fiscal health and the security of retirement benefits for retired municipal employees:

1. Transparency through reporting

2. Identification of potential problems

3. Review for fiscal health

4. Develop a corrective action plan

To learn more and see a list of local units determined to have “underfunded status,” go to www.michigan.gov/localretirementreporting. For more about Treasury’s local government programs, follow @MITreasLocalGov on Twitter.