PA 202 of 2017 Local Government Retirement System Annual Report
The Michigan Department of Treasury recently sent out reporting guidance concerning the local government retirement system annual report and implementation of Public Act 202 of 2017. Click here to learn more.
Public Acts 202-214 of 2017 Signed into Law Joined by a group of lawmakers, task force members and other stakeholders, Gov. Snyder signed the Protecting Local Government Retirement Benefits Act.
Joined by a group of lawmakers, task force members and other stakeholders, Gov. Snyder signed the Protecting Local Government Retirement Benefits Act.
The Protecting Local Government Retirement and Benefits Act, Public Acts 202-214 of 2017 was signed into law earlier this week. These reforms are recommendations of Gov. Snyder's Responsible Retirement Reform for Local Government Task Force, which was convened earlier this year to address concerns surrounding the unfunded pension and retiree health care liabilities of local governments in Michigan.
The 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 requirements
2. Identification of potential problems
3. Review for fiscal distress
4. Develop a corrective action plan
"This legislation is an important step forward in addressing one of Michigan's remaining unfunded liability challenges," Snyder said. "I appreciate the task force's hard work in developing a framework that will help move more communities toward greater financial stability. I also look forward to a continued cooperative effort as future work occurs on this important issue."
We anticipate that the Department of Treasury will issue guidance as it relates to the process soon. Once this information becomes available we will communicate with you through email and on our website and do our best to assist you with the new reporting requirements.
Summary of the December 5th Committee Hearings
After a full day of committee hearings on Tuesday, December 5th, both the Senate and the House worked through the early morning hours Thursday, December 7th to pass the Protecting Local Government Retirement and Benefits Act. In summary, Senate Bill 686 and House Bill 5298, the main bills in the package, were amended to align more closely to the Governor's Task Force recommendations from earlier this year. These recommendations outlined a comprehensive 5-stage fiscal stress system. For a summary of the Task Force recommendations, please click here.
As we indicated earlier this week, the original bills included language that:
- prohibited a local unit of government from reopening or reoffering a defined benefit plan after the defined benefit plan has been closed to new hires
- fundamentally changed the structure in which groups can leave MERS, and
- expedited the sunset date in which a local government can issue a bond for pension and/or OPEB obligations
It is important to note, this recently passed legislation no longer includes these provisions, and we will continue to closely monitor as it continues through the process.
The legislation is expedited to be finalized and passed on to the Governor next week. We anticipate the final signature will happen before the end of the year.
Summary of the Protecting Local Government Retirement and Benefits Act, as introduced on November 30, 2017
On November 30, 2017 both the House and Senate introduced identical 16 bills in each chamber focused on changes to retiree pension and health care benefits as well as developing a fiscal stress system. Senate Bill 686 & House Bill 5298 are the main bills in the package and creates the Protecting Local Government Retirement and Benefits Act. Please see a detailed summary of this act here.
As the fiduciary and administrator for the majority of pension plans in the state we have the following issues in implementing these bills.
Senate Bill 686 & House Bill 5298 Concerns
Section 4a.(c) Reopening Defined Benefit Retirement Systems, will prohibits a local unit of government from reopening or reoffering a defined benefit plan after the defined benefit plan has been closed to new hires.
Mandating that closed defined benefit plans cannot reoffer a defined benefit plan, may inadvertently prohibit future transitions to hybrid plans. In addition not allowing plans to reopen, eliminates local control and in some cases prevents them from making the most cost-effective decision for their community. Some communities have found that defined benefit or hybrid plans can be more cost-effective than their prior defined contribution plan by establishing fiscally responsible plan designs and sustainable cost-sharing with employees. Local governments should continue to be able to manage their plans based on their fiscal and employee workforce needs which allow them to attract and retain personnel. Additionally, the proposed law is intended to limit financial risk and should not prevent a local government that has made prudent financial decisions from continuing to do so.
Senate Bill 690 & House Bill 5310 Concerns
These modifications fundamentally change the structure in which groups can leave MERS. Based on the MERS statue that was created in 1945, if a group wants to leave MERS defined benefit, a vote of the people is required. Based on your feedback, in 2013 MERS Retirement Board did change the process for exiting the MERS defined contribution plan to a majority two-thirds vote of the governing body.
As you know, in the MERS defined benefit plan each municipality's retirement plan is maintained in a separate trust, which gives our members the benefits of pooling resources for investments while maintaining the integrity and individuality of each plan. Since we co-mingle assets for investment purposes, it is important that we have sound cash-flow projections. Today our $10 billion portfolio is allocated in such a way that ensures liquidity of assets to pay for the expected retirement benefits each month. If however, groups are able to leave the system without a fair and balanced process, the stability of the entire pool would be in jeopardy.
We are actively working with legislators and stakeholders on these issues. In addition, we are working to clarify Senate Bill 700 & House Bill 5311 to ensure that groups actively in the process of bonding aren't negatively impacted by the change in sunset date to 12/31/2017.
Task Force's recommendations
In his January 2017 State of the State address, Governor Rick Snyder announced the creation of a task force focused on addressing the unfunded pension and retiree health care liabilities (OPEB) of local governments in Michigan.
The report finds that the severity of this problem varies widely, as every local government in Michigan is unique. Today local governments already utilize a variety of retirement plans, and the majority of communities have already taken proactive steps to address their situations. This is why the solution must be flexible to focus on the communities experiencing the greatest fiscal stress.
For a summary of the Task Force recommendations, click here.
To view the full report, click here.
After MERS Annual Retirement Conference panel discussion on the Pension Task Force recommendations, we asked attendees what they thought:
Update - November 30, 2017
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.
Update - July 18, 2017
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.
Update - July 17, 2017
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.
Update - May 24, 2017
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.
Update - May 17, 2017
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.
Update - April 13, 2017
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.
Task Force Members
- 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.
Pensions, Fees, Guns Among Top Priorities As Year Winds Down
November 27, 2017 - An initial framework of municipal pension legislation would set up a five-step process outlining requirements for retiree health care and its funding, including a process to correct problems with underfunded plans. Defined benefit plans would be prohibited after July 1, 2018, under the proposal. Read More.
Snyder: To protect our future, we must pay past debts
November 27, 2017 - Michigan residents deserve the financial stability and effective delivery of local government services that help ensure their communities are strong and thriving, and retirees who have worked years for local governments deserve to know their retirement benefits will be there when they need them. Read More.
MIRS News Monday Weekly Podcast
November 27, 2017 - Rep. James Lower (R-Cedar Lake), chair of the Local Government Committee, wants to see reform of the state's municipal employee retiree health care system pass the House before Christmas. He said he doesn't see a package include state-mandated cuts to retiree benefits... Read More.
Gov. Snyder's task force on retirement reform for local government proposes recommendations for unfunded pension and retiree health care liabilities
July 18, 2017 - The proposals are focused on addressing Michigan's mounting local pension and health care costs, ensuring retiree support, and providing more financial stability and effective delivery of local government services. Read More.
MERS honored for commitment to Retirement Readiness
April 26, 2017 - The Municipal Employees' Retirement System of Michigan (MERS) was honored for its commitment to participant education and communication at the 2017 Eddy Awards sponsored by Pensions & Investments. Read More.
Snyder creates task force to address pension reform
February 7, 2017 - Gov. Rick Snyder on Monday announced the formation of the Task Force on Responsible Retirement Reform for Local Government to address unfunded long-term liabilities for retirees and municipalities. Read More.
Snyder forms task force to handle unfunded liabilities
February 6, 2017 - Michigan Gov. Rick Snyder is setting his sights on unfunded pension and retiree health care liabilities that experts warn could cripple local governments, creating a task force to develop a "responsible retirement reform" agenda by spring. Read More.
Retiree health care, pensions focus of new Gov. Snyder task force
February 6, 2017 - Two months after lame-duck efforts to address public retiree health care costs at the local level folded, Gov. Rick Snyder has formed a task force to study the issue. Read More.
Michigan leads effort to shift workers away from pensions
February 6, 2017 - Struggling under the weight of pension and health care obligations, Michigan lawmakers appear ready to take another whack at public employee benefits — a move that reflects renewed determination to shift workers to 401(k)-style retirement systems, even if it happens in baby steps. Read More.
Local Government Employee Retiree Benefits Get Task Force
February 6, 2017 - Governor Rick Snyder on Monday named a 20-person task force, including four legislators, to head up "responsible retirement reform" and address problems with pension and health care costs facing local governments statewide. Read More.
MERS' strong 2016 investment return strengthens long-term municipal pension plans statewide
January 26, 2017 - Investment returns reached 11.10 percent for the majority of Michigan's
local government retirement plans in 2016, thanks to the... Read More.
Lame duck update: What's moving through the legislature and what's not
December 12, 2016 - It's time to see which bills are dead, which are "extremely sleepy" and which are alive in these final days of lame duck. Read More.
Public retirement cuts would hit hard in Lansing
December 5, 2016 - ...lines, from making Michigan a right-to-work state to taxing pension income to asking state employees to pay more to maintain full pension benefits. Read More.
Senator David Knezek testifies on Pension Reform (video)
November 30, 2016 - "The question that we're not asking ourselves is, 'What type of a retirement, what type of livelihood do we want to provide for Michigan workers?' We may be able to get our unfunded liabilities down to zero if we ask our retirees to live in poverty; if we ask our retirees to work until they're dead. That's not something that I want on my conscience." I am, and will remain, opposed to any effort to eliminate pensions for Michigan school employees. Read More.
Michigan municipal retirees could see decreased health benefits under new bills
December 1, 2016 - Rumors of health care changes for municipal retirees swirled into the realm of legislation on Wednesday with the introduction of a dozen house bills on the subject. Read More.
Michigan Senate panel votes to close school pensions to new members
November 30, 2016 - The Republican-controlled Senate Appropriations Committee voted 9-8 Wednesday to close the school retirement system to new members, despite expert testimony from the administration of Gov. Rick Snyder and others that the move will cost billions. Read more.
Snyder officials: Teacher pension plan to cost billions
November 30, 2016 - The Senate has put off a vote on a controversial bill that would switch new teachers to a 401(k)-style retirement plan that is estimated to cost billions to Michigan tax payers. Read more.
Ciaramitaro: Closing the pension system would be a disaster
November 21, 2016 – We keep hearing that traditional pensions are "unsustainable" and in crisis. While it is true that many public pensions around the nation are still recovering from the Great Recession, the fact is that most are seeing their bottom lines improve and many are doing quite well. Read More.
Poleski Hoping For Municipal Retirement Reforms Next Month
November 21, 2016 – However, he said MML is interested in having a conversation about municipal finance and would like to have a seat at the table. When asked if a proper conversation could happen during lame duck, he said: "That is a very short window of time." Read More.
Are Local Government Retirement Reforms On The Horizon?
November 1, 2016 – …because it's a "complicated, complex issue," Mausolf said, "time and care should be taken to ensure that there isn't any unintended consequences for our public workers."Read more.
Talk Rife Of Senate Moving New School Employees To 401k
October 28, 2016 – The hybrid portion is 100 percent funded," Ms. Vanden Bosch said. "Nothing you do to new employees can reduce that legacy liability. Read more.
Leelanau County budget approved
October 19, 2016 – Leelanau officials happy with proposed budget... Read more.
County board approves 2017 spending plan
October 20, 2016 – In addition, retiree health care obligations are "trending positive with lower budgeted costs," Read more.
MERS submits op-ed to Crain's
October 20, 2016 – MERS CEO, Chris DeRose submits and op-ed to Crain's on the municipal retirement landscape in Michigan. Read more.
MERS submits op-ed to the Lansing State Journal
October 13, 2016 – MERS CEO, Chris DeRose submits an Op-Ed to the Lansing State Journal to add additional context to articles written on unfunded pension liabilities. Read more.
Study Finds Pension, OPEB Costs Manageable for Most Governments
October 5, 2016 – A recent study from the Center for Retirement Research at Boston College indicates liabilities for most governments are manageable. Read more.
MERS submits letter to Traverse City Record Eagle editor
October 3, 2016 – MERS CEO, Chris DeRose submits a letter to the Traverse City Record Eagle responding to an editorial: "Unfunded pensions could cripple the state." Read more.
Petoskey News: Pension positions: Where area governments stand with retirement liabilities
August 3, 2016 – MERS, in our opinion, do a good job of keeping track of where you are and making recommendations," said Tom Cannon, city administrator in East Jordan. Read more.
Saginaw shifting $72 million city-managed police pension fund to MERS
May 12, 2016 – "They have demonstrated a better return on investments and lower management fees," Jordan said. "In addition to that, the administrative costs that we are doing in-house, we'd be outsourcing that. So there would be an internal saving with that." Read more.