State hones in on 'underfunded' pension and health care plans, including 7 in mid-Michigan

LANSING — Seven Lansing-area public employee retirement plans have come under scrutiny from the state for their unfunded liabilities.

The Michigan Department of Treasury contacted pension plan administrators last week to inform them that reports they submitted to the state in January had triggered a preliminary review of the policies’ “underfunded status.”

The pension and retiree health care plans considered underfunded in the Lansing area are:

• The Lansing pension and retiree health care plans
• The East Lansing pension plan
• The St. Johns pension plan
• The Eaton Rapids pension and retiree health care plans
• The Grand Ledge Area Emergency Services retirement health care plan
• The Capital Region Airport Authority retirement health care plan
• The Charlotte Community Library pension and retirement health care plans

The notifications were sent March 1 and 2 to underfunded pension and retiree health care plans statewide, a new requirement of laws passed last year to protect local government retirement benefit plans.

Government retirement plans whose budget year ended by July began submitting retirement data to the treasury in January. Entities whose budgets end after July have more time to submit their reports, and could increase the number of plans considered "underfunded."

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

Once a government unit is notified that its underfunded, the entity can either apply for a waiver by proving the shortfall is being addressed or submit to an internal review by the Treasury. A state review also is conducted if a waiver is denied.

The internal review examines the retirement system, discusses potential changes or reforms, reviews actuarial projections and develops a corrective action plan that would be submitted to the Municipal Stability Board.

By the numbers

Lansing reported its pension system is 57.6% funded for general employees, which triggered a review by the state, and 69.4% funded for police and fire, which is sufficient to avoid a review of underfunded status.

Lansing reports its retiree health care system is 19.8% funded — low enough for a review.

City Spokeswoman Valerie Marchand declined to say whether Lansing would be applying for a waiver, adding that officials are evaluating their next steps.

"This was not a surprise," Marchand wrote in an email. "We have been very cognizant and proactive in addressing this important issue."

In all, the city is grappling with more than $680 million in unfunded pension and retiree health care costs to be paid over the next three decades, according to an estimate from the Lansing Financial Health Team.

The team, first convened under former Mayor Virg Bernero in 2012, is continuing to meet under Mayor Andy Schor, who took office in January. Schor announced earlier this year the city would partner with Michigan State University to update numbers from its original 2013 FHT report.

East Lansing also had a task force to help city leaders and the community understand and address its unfunded liabilities. The state's notification came as no surprise, East Lansing City Manager George Lahanas said. 

The city’s pension plan is 50% funded and officials plan to contribute about $6.3 million, or 13.7% of the city’s governmental fund revenue, toward the plan. The health care plan is 27.9% funded.

Lahanas said the city will submit a waiver to the state with a plan to address the city’s unfunded liabilities. He said the city has restructured some benefits and contributions for employees and is exploring service reductions and new tax options to generate more revenue.

Lahanas said the problem is larger than just East Lansing. State laws limit the city's bargaining power when it comes to renegotiating benefits, Lahanas said, and cuts to state revenue sharing have contributed to the city’s negative revenue growth between 2006 and 2017.

“The state provides the entire playing field for us,” Lahanas said. “Michigan is a tough place to run a city.”

More:

Lansing's next mayor Andy Schor will inherit over $680 million in unfunded legacy costs

East Lansing officials float new tax increase options to fill budget gap

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Eaton Rapids already has submitted a waiver to the state, Eaton Rapids Mayor Paul Malewski said. The city’s pension plan is 58.7% funded and its health care plan is 0% funded.

Malewski said the city planned to meet with its pension managers Wednesday. 

“We have an obligation to the retirement system and we have an obligation to our employees and we’re going to work very diligently to meet that obligation,” Malewski said.

The St. Johns pension system is 45.7% funded and the city plans to contribute at least $762,000 a year in an effort to pay off the remaining $9.5 million liability. 

City Manager Jon Stoppels said, pending commissioners' approval, the city will submit a waiver to the state and continue measures already in place to address the issue. 

"We do have a plan to pay on and above what we would normally contribute to the pension fund," Stoppels said. 

Grand Ledge Fire Chief Rodney VanDeCasteely said the department’s unfunded health care plan, which triggered state review, is a little more nuanced than the numbers imply.

VanDeCasteely said the department has a retiree health care plan that splits health care costs between the retiree and the city. However, no retirees have utilized it in more than 30 years. 

“What we’ve found is most people at the age of retirement can find cheaper healthcare,” VanDeCasteely said.

Because of that trend the city has not been making contributions to the plan. 

The situation regarding Charlotte Community Library’s health care plan is similar to that at the Grand Ledge fire department.

Its pension plan, however, is about 50% funded.

Library Director Jim Oliver estimates the library would need to pay another $390,000, likely in payments over time, to fully fund the plan. He said the library plans to submit a waiver to the state.

“We’ve been in the process for a long time trying to bring the funding up,” Oliver said.

The Capital Area Regional Airport Authority also plans to submit a waiver, CEO & President Wayne G. Sieloff said. The state flagged the airport authority's retirement health care system after CARAA reported it is 0% funded. Sieloff said that number is so low because the airport has been paying retiree costs from its operating budget, rather than from the type of dedicated retiree system under scrutiny by the state.

Sieloff added that airport authority is reviewing its funding mechanisms to "continue to reduce" its unfunded liabilities. 

Contact Beth LeBlanc at 517-377-1167 or eleblanc@gannett.com. Follow her on Twitter @LSJBethLeBlanc. Sarah Lehr contributed reporting. Contact her at (517) 377-1056 or slehr@lsj.com. Follow her on Twitter @SarahGLehr.