Retirement Reform Bills Introduced

A 16-bill package was introduced today in the Senate, which affects Local Governments' retirement and other post-employment benefits (OPEB).

The primary bill in the package creates a five-step process for uniform reporting of retirement benefit information, identifying plans in trouble and, if necessary, assigning a three-person panel of local and state appointees to help negotiate a plan for returning to solvency. See SB 686 here. With an identical package being introduced in the House.

While we are still reviewing all the bills, we do want to highlight that one of the bills directly impacts MERS, by changing the fundamental structure of how plans can leave the system. We will closely evaluate this issue, and will continue to advocate for the stability of the pool on behalf of all our members. See SB 690 here.

It is anticipated that lawmakers will take testimony on the bills next week, with the goal of taking action before the end of this session. It is expected that ongoing amendments will be made as part of the process. We are committed to keeping you informed and will provide regular updates as information becomes available.

MERS applauds bipartisan taskforce report

Findings support tailored approach and embraces fiscal best practices

Chris DeRose, CEO of the Municipal Employees' Retirement System of Michigan (MERS) today applauded Gov. Rick Snyder's Responsible Retirement Reform Task Force report and urged lawmakers in both parties to consider its important findings.

"Since every local government is unique and already utilizes a variety of retirement plans, there is no one size fits all solution to retirement reform and this task force report underscores that," DeRose said. "The report rightly recognizes that many Michigan communities are already taking proactive, innovative steps to achieve full funding of their retirement plans so they can keep their promises to those who have served our communities."

DeRose was one of many who served on the task force, which also included lawmakers from both sides of the aisle, municipal and insurance experts, and other key stakeholders. MERS administers benefits for more than 84% of local government retirement plans.

"The task force recommendations focus our efforts on those communities experiencing the greatest fiscal stress" DeRose said. "The task force report also calls for beginning to prefund retiree health care benefits (OPEB) for the first time and correctly acknowledges this situation was not created overnight and will not be resolved overnight. Instead, it calls on us to roll up our sleeves and craft solutions that are fiscally responsible, while preserving the retirement options our police officers, firefighters and other public servants depend on."

For a summary of the Task Force recommendations, click here.
To view the full report, click here.

Governor Snyder signed the teacher pension reform bill today modifying the Michigan Public Schools Employee Retirement System, known as MPSERS. For more information about the changes, you can read Public Act 92 of 2017 (previously SB 0401), or the Office of Retirement Services summary.

The act will close the current hybrid plan as of Feb. 1, 2018, and create a new hybrid plan option along with an enhanced 401(k)-style defined contribution option for new enrollees.

The new hybrid plan has the same benefit formula as the old hybrid plan, however the costs will be paid on a 50/50 cost sharing basis. In addition, the new plan includes a variable retirement age based on the plan's mortality experience, eliminates service credit purchases, and has a lower investment return assumption. A trigger was also introduced that would close the hybrid plan to new employees should the actuarial funding ratio fall below 85% for two consecutive years.

The enhanced defined contribution plan now mirrors the plan in place for state employees, with an automatic employer contribution equal to 4% of a participant's compensation plus a 100% matching contribution capped at an additional 3% of a participant's compensation.

While this legislation does not affect local governments, or the MERS system, we are committed to keeping you informed of key pension reform in Michigan.  

Bills were introduced in both the House and Senate yesterday that would close the Michigan Public School Employees Retirement System (MPSERS) Hybrid Plan. While this legislation does NOT affect local governments at this time, we will continue to monitor this effort closely as MERS plans could be affected in the future.

To view Senate Bill 0401, click here. To view House Bill 4647, click here.

Closing all Defined Benefit and Hybrid Plans and mandating to a Defined Contribution (401(k)-style) will cost taxpayers more according to the independent Senate Fiscal Agency analysis performed last year when similar bills were introduced in Lame Duck. There would be a similar impact should such a mandate come to local governments, who already utilize various retirement plans including Defined Contribution, Defined Benefit and Hybrid Plans based on their unique workforce needs.

In fact, plans within MERS are on schedule to eliminate unfunded liabilities over a period of 23 years and over the past five years, 73% have taken additional steps to reduce their unfunded liabilities. We will continue to partner with customers to manage both their pension and OPEB liabilities, and believe legislative attention should focus on the local units experiencing the greatest fiscal stress, and not mandate a rigid cookie-cutter approach that eliminates flexibility.
MERS will continue to keep you updated on this effort. Please click here to send us your thoughts and feedback.

While no formal recommendations have been made by the group at this point, the final meeting was last Monday May 8th. This has been an intense process where we feel we have added value by providing context, education and shared the many actions customers are taking to responsibly manage their unfunded liabilities. As more details become available, we are committed to keeping you updated.

One key legislative issue that we're monitoring closely is the effort to close the Michigan Public Employees Retirement System (MPSERS) hybrid plan. Last year, a similar proposal was made in Lame Duck, and the Senate Fiscal Agency estimated that such a move would result in an additional $33 billion in costs to taxpayers over 30 years; and cost $591 million in the first year alone. The entire analysis can be found here.

Some have advocated for closing all defined benefit retirement plans, including those for local governments. If such a mandatory legislative initiative were passed, MERS customers could experience similar results as the MPSERS estimates. The key cost impact related to closing all defined benefit and hybrid plans to new entrants is the effect on the plan's cash flows, which ultimately results in the asset allocation becoming more conservative. This results in lower investment income over-time, which means higher contributions in both the short and long-term. It has been estimated that this could increase employer contributions between 20 and 30 percent.

An Update on the Responsible Retirement Reform Task Force
Earlier this year, Governor Rick Snyder announced the creation of the Responsible Retirement Reform Task Force and asked MERS CEO Chris DeRose to participate. The group has met several times since February and the focus of the meetings so far has been sharing information on how pension and retiree health care plans are currently being administered, and what issues should be addressed by the task force.

Thank you for your feedback, and please continue to provide it! Chris has made an effort to share your thoughts and concerns with the task force, and will continue to do so.

Key themes we have heard from you include:

1) The need to provide awareness and information to key decision makers of the actions that you have already taken to manage your unfunded accrued liability. It is clear that more education of policy makers is needed in this area.

2) One-size doesn’t fit all – each municipality has its own unique challenges and that should be taken into consideration.

3) Ensure that there aren’t unintended consequences of recommended reforms. Recruitment of qualified employees and workforce management are key areas that may be impacted by recommended changes.

To date, no recommendations have been formulated. However, it is clear that OPEB is the bigger issue and there may be a need for additional reporting and transparency. MERS will continue to keep you updated on the activities of the task force here.

Again your ongoing feedback and thoughts are critical in this process! Please click here to send us your thoughts and feedback..

For a print version of the myth vs facts sheet, click here.

• David Breen, retired managing partner at PricewaterhouseCoopers
• Ben Carter, executive vice president and interim leader of East Group Operations for Trinity Health
• Rep. Tom Albert (R-Lowell)
• Rep. Andy Schor (D-Lansing)
• Sen. Jim Stamas (R-Midland)
• Sen. Rebekah Warren (D-Ann Arbor)
• Chris DeRose, Municipal Employees' Retirement System
• Judy Allen, Michigan Townships Association
• Steve Currie, Michigan Association of Counties
• Tony Minghine, Michigan Municipal League
• Mark Cook, Blue Cross and Blue Shield of Michigan
• Bob Daddow, Deputy Oakland County Executive
• Paula Zelenko, Burton Mayor, a former state House member
• Mark Dochety Michigan Professional Firefighters
• Ken Grabowski, Police Officers Association of Michigan
• Dave Hiller, Michigan Fraternal Order of Police
• Mike Sauger, Michigan Association of Police Organizations
• Nick Ciaramitaro, AFSCME
• Mary Schulz, MSU Extension Center Associate Director
• Michael VanOverbeke, Michigan Association of Public Employee Retirement Systems
• The governor's ex-officio members include state Treasurer Nick Khouri, Department of Insurance and Financial Services Director Pat McPharlin and Strategic Policy Director John Walsh.